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If you want to keep your hard-earned money safe without any market risk and are looking for better returns than bank FD, then the Post Office Time Deposit (POTD) scheme of the Indian Post Office can prove to be a suitable option for you. Away from the ups and downs of the stock market and the risks of mutual funds, this government savings scheme guarantees investors assured returns at fixed interest rates. Since it is operated by the Government of India, the capital deposited in this scheme remains completely safe. The biggest feature of this scheme is that in this you get the option to make fixed deposits for the tenure of 1 year, 2 years, 3 years and 5 years. Many times investors get confused in calculating how much total interest and maturity amount they will receive at the end of each period if they deposit ₹ 1,00,000 in lump sum.
Under the Post Office Time Deposit Scheme, interest is calculated on quarterly compounding basis, but its actual payment is made to the investor on an annual basis. The interest rates of small savings schemes are reviewed every quarter by the Finance Ministry of the Central Government. As per the current rules, the interest rate applicable is 6.9% per annum for a period of 1 year. If you deposit money for 2 years or 3 years, you get interest at the rate of 7.0% per annum. At the same time, an attractive interest of 7.5% is being given on the longest tenure i.e. 5 years time deposit account. Due to compound interest being compounded quarterly, this scheme provides better effective returns than simple annual interest schemes. Investment in this scheme can be started from a minimum of ₹ 1,000 and there is no limit on the maximum investment, so all investors, small and big, can lock the amount as per their convenience.
If you deposit ₹1,00,000 in the post office for a period of 1 year, you get an annual interest rate of 6.9%. Due to compounding being calculated on quarterly basis, at the end of 1 year you get a total interest of approximately ₹ 7,081. This means that on completion of one year your total maturity amount will be approximately ₹ 1,07,081. For those who do not want to lock their capital for too long and are looking for a safe haven for short-term goals, this one-year option is quite useful. You get the benefit of liquidity in this and after the completion of the year, you can reinvest your principal and interest in any other scheme.
If you have a medium term view and invest ₹1 lakh for 2 years, then at an interest rate of 7.0% compounded quarterly, you get a total net interest of around ₹14,888. On completion of the period of 2 years, a total amount of ₹ 1,14,888 will be deposited in your account. Whereas if you keep the same ₹ 1 lakh in a time deposit for 3 years, then the total interest received at the end of 3 years at the rate of 7.0% increases to approximately ₹ 23,144. This means that after 3 years you will get back the total amount of ₹ 1,23,144 on maturity. This option is best for those who are planning any major household expenses or education expenses in the next two to three years.
Post Office’s 5-year time deposit scheme is most popular among investors as it offers a maximum interest rate of 7.5%. If you deposit ₹1,00,000 in lump sum, the total interest in 5 years with 7.5% compound interest rate works out to around ₹44,995. That means after 5 years your total maturity value will be approximately ₹ 1,44,995. Apart from this, one also gets the benefit of tax exemption of up to ₹ 1.5 lakh per financial year under Section 80C of the Income Tax Act on time deposits of 5 years. This dual benefit makes it quite attractive compared to bank tax saver FDs as the post office rates are more competitive than many major banks.
Opening a time deposit account in the post office is a very easy and transparent process. Any adult citizen of the country can open a joint account with single or 3 adults by visiting any nearest post office branch. The account can also be operated in the name of a minor above 10 years of age by the guardian or by him/herself. It requires basic KYC documents like Aadhar card, PAN card, passport size photograph and residence certificate. If you already have a post office savings account, you can open a time deposit account online from the comfort of your home using India Post Payments Bank (IPPB) mobile banking or post office internet banking. The facility of nomination in the account is compulsorily given so that in case of any untoward incident, the deposited capital can be given to the nominated person without any legal hassles.
Investors need to know that no withdrawal is allowed from the Post Office Time Deposit account for the first 6 months from the date of deposit. If the account holder closes the account after 6 months but before completion of 1 year, he will get interest as per Post Office Savings Account ordinary rate (which is currently 4.0%) instead of time deposit interest rate. Whereas if the account of 2, 3 or 5 years is closed pre-maturely after completion of 1 year, then the interest is paid by deducting 2% from the prescribed interest rate. Therefore, it is always beneficial to properly assess your time horizon before investing so that there is no loss of interest.
If you want to protect your retirement funds, are a senior citizen or want to grow your capital in safe government instruments with low risk, Post Office Time Deposit is a balanced and reliable option. Due to being a government guarantee, there is zero risk of default and at the stipulated time, your interest is directly transferred to your savings account, which you can also use as regular income. An investment of ₹1 lakh grows to approximately ₹1.45 lakh in 5 years, which is a sound and stable financial decision in terms of safe savings.