Simple Ways to Differentiate Between Post Office and Bank FD

Updated on: 4 Dec 2024

Throughout the years, numerous new opportunities for investment have emerged that offer high returns. Nonetheless, there are limited alternatives that offer the same level of security as fixed deposits offered by banks and the Post Office. By comparing Post Office vs bank FD interest rates, you can opt for the best option as per your long- and short-term goals.

With this investment, you don’t have to worry about the fluctuating market as both savings schemes preserve your capital and offer a fixed rate of interest. This is the reason why the popularity of bank and Post Office FDs remains evergreen, making them a reliable option for the risk averse. Read on to learn more about both options in detail.

Guide to Bank FDs

As the name suggests, when you open an FD account in a bank, it is called a bank FD. A fixed deposit requires you to invest at least the minimum specified by the financial institution in a lump sum for a chosen period. Once the tenure ends, you get the deposited amount, along with earned interest, which is usually credited to your bank account.

You can also choose to earn interest as regular payouts based on your needs and the frequency offered by the bank. This secure investment option gives better returns than a savings account. Here are the key features of a bank FD:

Interest rates differ across banks and tenures
Offers capital preservation
Has flexible tenures
Offers loan and overdraft facility
Tax benefits when you choose a 5-year tax-saver FD

What is a Post Office FD?

This fixed deposit, called the Post Office Time Deposit, shares some similarities to regular FDs. You can invest funds in your nearest post office for a certain period. You will receive your capital along with added interest at maturity. Since it is a government instrument, you get the advantage of the sovereign guarantee, which boosts your safety.

Unlike the bank FDs, whose rates vary across institutions, you get a fixed interest rate on all post office fixed deposits in India. These interest rates only vary as per the tenure. Longer investment tenures have higher interest rates and vice versa. The following table shows the updated rates offered as of March 2024.

FD Investment Tenure	Interest Rate
1 Year	6.9%
2 Years	7.0%
3 Years	7.1%
5 Years	7.5%

Disclaimer: These interest rates are current as of March 2024, but may be subject to change. Check the latest rates before you invest.

Here are some other features of PO FDs:

Anyone over 18 years of age can open individual or joint accounts for up to 3 adults
Guardian can book FDs for minors over the age of 10 years
You can start with a minimum deposit of ₹1,000 with the subsequent deposit in multiple of ₹100 with no upper limit
You can get tax exemptions when booking a tax-saver FD for 5 years
The lock-in period is 6 months
If you prematurely withdraw your FD before 1 year, your interest will be reduced to the savings account rate offered by the post office

Post Office Fixed Deposit vs Bank Fixed Deposit

Here is a brief overview of the differences between these two options, so you can choose the ideal savings scheme:

Factors	Post Office FD	Bank FD
Interest Rates	Offers an interest rate of 6.9% to 7.5%	Offers interest between 2.50% pa to 9.00% p.a., based on the bank and tenure
Investment Ease	Requires a visit to your nearest post office	You can visit your bank, use your bank’s mobile app or website to book the FD
Minimum and Maximum Required	You can get started with ₹1,000 without any maximum limit	The deposit limit varies from one bank to another and is usually ₹10,000
Rates for Senior Citizens	No added benefits for senior citizens	Banks offer 0.25% to 0.65% higher interest rates for senior citizens
Investment Timeline	You can invest for 1,2, 3 or 5 years	You can choose a comfortable tenure between 7 days and 10 years

Similarities Between Bank FD and Post Office FDs

Though there are a few differences, there are also similarities between these two secure investment options, such as:

Premature Withdrawal Options: You can withdraw your money prematurely with an interest rate penalty
Tax Benefits: Both schemes are subjected to tax deductions under section 80C of the Income Tax Act for the investment amount; the interest earned on both is taxable as per your slab
Risk Appetite: FDs, in general, are low-risk investment options
Flexible Investment: Either option allows you to choose the tenure as per your flexibility and goals, though post offices have limited options as compared to bank
Loan Facility: In case of emergency, you don’t need to withdraw your FD, as you can get a loan against both FDs