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If you want to keep your hard-earned money completely safe by staying away from the risks of stock market and fluctuations of mutual funds, then post office savings schemes have always been the first choice of the Indian middle class. Post Office Time Deposit (POTD), popularly known as ‘Post Office FD’, operated by the Indian Postal Department (India Post), offers 100% safe and guaranteed returns to investors. Due to government guarantee, there is zero risk of losing even a single rupee invested in it. Many investors plan to deposit a lump sum amount for a short period i.e. 12 months (1 year). In such a situation, it is important to know how much interest and total maturity amount will be received in 1 year on a deposit of Rs 1 lakh.
Safe investment and government guarantee: What is Post Office Time Deposit Scheme?
Post Office Time Deposit Scheme is a Small Savings Scheme supported by the Finance Ministry of the Central Government. This account can be opened in the post office of any city or rural area of the country. The biggest feature of this scheme is that it provides Sovereign Guarantee on the deposited capital. While in banks only deposits up to Rs 5 lakh are protected under DICGC, in post offices your entire investment amount and the interest earned on it is directly protected by the Government of India.
How much profit will be earned on Rs 1 lakh in 12 months? Understand the complete calculation
Currently, interest is given at the rate of 6.9% per annum on 1 year time deposit of post office. The most special thing about this scheme is its method of interest calculation. In this, interest is calculated on quarterly compounding basis, while payment is made annually at the time of maturity. Due to quarterly compounding, the investor gets slightly higher real returns than simple interest.
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Total investment amount (principal): ₹1,00,000
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Investment period: 12 months (1 year)
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Applicable Annual Interest Rate: 6.9% per annum
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Method of Interest Calculation: Compounded Quarterly
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Total interest earned: ₹7,081 (approx)
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Total maturity amount after 1 year: ₹1,07,081
If you deposit Rs 1 lakh in a post office 1-year FD today, you will get a secured amount of Rs 1,07,081 back in your account on completion of the 12-month tenure.
How does the mathematics of quarterly compounding increase your returns?
Often investors think that on Rs 1 lakh, a simple interest of only ₹ 6,900 should be available at the rate of 6.9%. The interest received in the post office every 3 months (quarters) is added to the principal amount. After this, in the next quarter, interest is calculated again on that increased principal at the rate of 6.9%. Due to this cycle, the Effective Annual Yield increases from 6.9% to approximately 7.08%, giving you a full interest of ₹7,081 instead of ₹6,900 at the completion of 12 months.
Post Office FD interest rates for different tenures
The post office offers time deposit facilities to its customers for various tenures ranging from 1 year to 5 years. The interest rates are different for each period:
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1 Year Time Deposit: 6.9% per annum
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2 Year Time Deposit: 7.0% p.a.
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3 Year Time Deposit: 7.1% per annum
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5 Year Time Deposit: 7.5% per annum
If an investor invests for a long term, then a 5-year post office FD with an attractive interest rate of 7.5% also gets the benefit of tax exemption of up to ₹ 1.5 lakh under Section 80C of the Income Tax Act. Tax exemption under 80C is not available on FDs of 1 year, 2 years or 3 years.
Bank FD vs Post Office FD: Where is the greater benefit?
The Post Office 1-year time deposit offers very competitive returns compared to the normal 1-year FD interest rates of the country’s leading commercial banks (like SBI, PNB, HDFC, ICICI). Many banks offer interest between 6.50% to 6.80% for a tenure of 1 year, while the post office is offering fixed and safe returns of 6.9%. The reach of branches in the post office is also quite accessible for residents of rural and semi-urban areas compared to banks.
Key Terms and Conditions of Post Office Time Deposit
Minimum and Maximum Investment: The minimum investment to start this account is ₹1,000. After this, any amount can be deposited in multiples of ₹100. There is no limit on maximum investment in this.
Eligibility of account holders: Any Indian citizen can open a single account. A maximum of 3 adults can open a joint account (Joint A or Joint B). A guardian can open an account in the name of a minor above 10 years of age.
Number of accounts: A person can open as many time deposit accounts as he wants in the post office, separately or together.
Premature Withdrawal: Money cannot be withdrawn from the account before completion of 6 months from the date of deposit. If the account is closed after 6 months and before 1 year, the same interest rate as Post Office Savings Account (simple 4%) is given.
Tax rules and effect of TDS
The interest received on post office time deposits is fully taxable. The interest earned is added to the investor’s total annual income under the head ‘Income from Other Sources’ and is taxed as per the investor’s respective income tax slab. If the total interest earned from all post office deposit schemes in a financial year exceeds ₹40,000 (₹50,000 for senior citizens), tax deducted at source (TDS) is applicable under the rules. If your total income is less than the taxable limit, you can submit Form 15G or Form 15H to avoid TDS.
How to open 1 year FD in post office?
Offline Process: Visit your nearest post office. Get the time deposit account opening form from there. Select a period of 1 year in the form. Enclose identity proof (Aadhaar card, voter card) and address proof. Attach PAN card and passport size photo. Deposit cash or check of specified amount and receive instant receipt.
Online Process: If you have an India Post Payments Bank (IPPB) account and post office internet banking facility is activated, you can open a time deposit account digitally through the mobile app or web portal from the comfort of your home.
1 Year Post Office FD is a great and reliable option for senior citizens, housewives and new investors looking for a secure future, zero market risk and fixed income.