Post office fixed deposits (FDs) have been a popular investment option in India for decades. They are considered secure investments with a guaranteed return. These FDs are a type of savings scheme with the Indian Post Office, offering a fixed interest rate on a fixed term. In this article, we will discuss the advantages of investing in post office FDs, the interest rates, and the benefits.
Understanding Post Office FD Interest Rates
Post office FD rates are determined by the government of India and are reviewed quarterly. The current rates as of July 2021, are as follows:
Tenure Interest Rate*
1 Year 5.5%
2 Year 5.5%
3 Year 5.5%
5 Year 6.7%
*The rates mentioned above are subject to change, and investors must check the rates before investing.
The interest rates offered by post office FDs are relatively better than those offered by savings accounts. They are a great investment option for risk-averse investors who want to earn a fixed return on their investment. Additionally, post office FDs are a great investment option for those who want to plan their finances for a fixed term and want to create a corpus for a specific goal.
Benefits of Investing in Post Office FDs
1. Guaranteed Returns: Post office FDs provide a guaranteed return on investment. The interest rates are fixed and do not change during the tenure of the investment. Therefore, investors can rest assured that they will earn the same fixed returns during the term of the FD.
2. Tax Benefits: Investments in post office FDs are eligible for tax exemptions under Section 80C of the Income Tax Act, 1961. An investor can invest up to Rs. 1.5 lakh in post office FDs and claim the tax exemption. Additionally, the interest earned on a post office FD is also eligible for tax exemptions up to Rs. 10,000 under Section 80TTB if the investor is above the age of 60 years.
3. High Liquidity: While post office FDs are a fixed investment option, they also offer high liquidity. Investors can withdraw their investment before maturity, subject to prepayment charges. Additionally, investors can also use their post office FDs as collateral to avail of loans from banks.
4. Safety and Security: Post office FDs are considered safe and secure investments as they are backed by the government of India. They are not prone to market fluctuations, and investors can rest assured that their investment is safe.
5. CKYC Compliance: Investors must comply with the Central KYC (Know Your Customer) Registry in India before investing in mutual funds, stocks, bonds, or any other investment option. The CKYC full form is Central Know Your Customer, and it is a centralized registry covering all financial institutions. Post office FDs require basic documentation, including identity proof and address proof, and compliance with CKYC guidelines, making the investment process simple and hassle-free.
Calculating Returns on Post Office FDs
Let’s understand the returns on post office FDs with an example. Suppose an investor invests Rs. 1,00,000 for a term of five years at an interest rate of 6.7% per annum. The interest earned on the investment each year would be:
1st year: 6.7% on Rs. 1,00,000 = Rs. 6,700
2nd year: 6.7% on Rs. 1,06,700 = Rs. 7,152
3rd year: 6.7% on Rs. 1,13,852 = Rs. 7,616
4th year: 6.7% on Rs. 1,21,468 = Rs. 8,103
5th year: 6.7% on Rs. 1,29,570 = Rs. 8,613
At maturity, the investor will receive the principal amount of Rs. 1,00,000 and interest earned during the term of Rs. 38,184. Thus, the total maturity value of the investment would be Rs. 1,38,184.
Conclusion
Post office FDs are a safe and secure investment options for risk-averse investors who are looking to create a fixed corpus for a specific goal. The interest rates offered by post office FDs are relatively better than those offered by savings accounts, and the investment is backed by the government of India. Additionally, post office FDs come with tax benefits and offer high liquidity. It is important to note that investors must gauge all the pros and cons of trading in the Indian financial market and seek the advice of a financial expert before investing.
Summary:
Post office fixed deposits (FDs) are government-backed secure investments with a guaranteed return. The interest rates on post office FDs are determined by the government of India and are reviewed every quarter. Post office FDs offer tax benefits, high liquidity, and compliance with CKYC guidelines. Unlike mutual funds, they are not prone to market fluctuations and offer guaranteed returns on a fixed term. However, investors must gauge all the pros and cons of trading in the Indian financial market and seek professional financial advice before investing.
