7% interest on Post Office FD for 2 years and 7.5% for 5 years: What are the special rules for senior citizens? understand the full details

Post Office Savings Schemes have been the first choice of Indian families when it comes to safe investments and government guarantee. Post Office Time Deposit (POTD), popularly known as Post Office FD (Fixed Deposit), is a reliable option for common citizens and especially senior citizens who want a fixed income away from market fluctuations. Under current rules, the post office is offering 7.0% annual interest on FDs of 2 years and 7.5% per annum on FDs with a tenure of 5 years. However, when it comes to investment by senior citizens, many people assume that like banks, the post office also gives an additional interest of 0.50% on FD, whereas the reality is quite different. Let us understand how post office FD interest rates work and what is the real way for senior citizens to earn maximum profits in post office.

Fixed deposit i.e. time deposit in the post office can be made only for four fixed periods (1 year, 2 years, 3 years and 5 years). There is no facility to get customized FD according to days or months.

• 1 year FD: 6.90% annual interest

• 2 year FD: 7.00% interest per annum

• 3 year FD: 7.10% annual interest

• 5 year FD: 7.50% annual interest (tax exemption also available under section 80C)

The most special thing about post office FD is that the interest is calculated on quarterly compounding basis, but it is paid annually. Due to quarterly compounding, the investor’s actual return (Effective Yield) comes out to be slightly higher than the normal simple interest.

Commercial banks usually offer 0.50% to 0.75% more interest than normal rates to senior citizens aged 60 years or more. But as per the time deposit rules of the post office, the interest rates applicable for both general citizens and senior citizens remain exactly the same (6.90% to 7.50%).

However, senior citizens enjoy huge legal benefits on the tax front:

• Benefits of Section 80TTB: Under Section 80TTB of the Income Tax Act, senior citizens are completely tax-free up to ₹ 50,000 of the total interest they receive from post office or bank FD/savings account in a financial year.

• Relief from TDS: For ordinary citizens, banks or post offices deduct TDS if the interest exceeds ₹40,000, while for senior citizens this TDS exemption limit is ₹50,000. If the total annual income is less than the tax slab, TDS deduction can be stopped completely by submitting Form 15H.

If an investor deposits a lump sum amount for 2 years (7.0% interest) or 5 years (7.5% interest), the total maturity amount received on the basis of quarterly compounding will be as follows:

Since senior citizens do not get any additional interest in post office FD, post office FD is suitable for investors above 60 years of age. Senior Citizen Savings Scheme (SCSS) Proves to be much more beneficial:

1. Bumper interest rate of 8.2%: The government is currently offering interest at the rate of 8.2% per annum in SCSS, which is 0.70% higher than 5 year FD (7.5%).

2. Regular Quarterly Income: While in FD, interest is paid annually, in SCSS, interest is paid directly into your savings account every 3 months, which makes it very easy to meet regular expenses after retirement.

3. input range: A senior citizen can deposit a maximum of ₹30 lakh in this scheme, and a spouse can safely invest up to ₹60 lakh in a joint account.

4. Tax Exemption: The principal amount deposited in this scheme also gets the benefit of tax exemption up to ₹ 1.5 lakh under Section 80C of Income Tax.

If your horizon is 1 to 2 years, then Post Office 2 Year Time Deposit with assured government guarantee of 7% is a safe option. But if you are 60 years of age or above and want to invest your capital for 5 years, it would be financially wiser to choose a SCSS scheme that offers 8.2% interest instead of a normal FD that offers 7.5%.