Bank Fixed Deposit Vs Post Office Time Deposit: Which is a better option for you?

 

Let’s check out the difference between Bank FDs and Post Office Time Deposits based on various factors and which one you should choose to get the maximum benefit on your investment.

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Fixed deposits (FDs) are one of the favourite investment instruments for investors of all age groups. FDs are easy to understand, and they also allow a high level of security and quick liquidity, making them a hot favourite amongst investors. Amid rising rates of interest and volatility in other investment instruments like shares and mutual funds, FDs are drawing big attention of investors.

Investors must understand their needs correctly and choose the right FD product to get the maximum benefit out of their investments. While most of the banks have changed interest on their FDs, the post office time deposit rates have also been revised recently by the government of India. So, which one should you opt for — Banks FDs or the post office time deposits?

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Let’s check out the difference between Bank FDs and Post Office Time Deposits based on various factors and which one you should choose to get the maximum benefit on your investment.

EASE IN INVESTING

It’s easy to invest in Bank FDs as well as in the post office time deposit. You can start both investments through their respective online platform. One thing that can make a difference is physical access to the local branch. Sometimes the post office is situated far from the investor’s place but in the case of bank FDs, the investor usually gets several bank options in their locality where they can open an FD account.

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SECURITY OF YOUR INVESTMENT

Post office FDs come with a sovereign guarantee i.e., it’s backed by the government of India. On the other hand, bank deposits up to Rs 5 lakh are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). So, both fixed deposit instruments offer a high level of security on your investment.

TENURE AVAILABLE IN POST OFFICE DEPOSIT AND BANK FDS

Post office time deposit is offered for a minimum and maximum tenure of 1 year and 5 years, respectively. In bank FDs, you can invest for a minimum of 7 days and usually, the maximum period allowed is up to 10 years. So, bank FDs allow more flexibility in terms of tenure choice as you can also invest for less than 1 year and more than 5 years.

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BENEFIT FOR THE SENIOR CITIZENS

Most of the banks offer a higher interest rate on FDs for senior citizens. The interest rate benefit ranges from .5% to .75% pa over the non-citizen fixed deposits. On the other hand, the post office time deposit offers the same interest rate for senior citizens and non-senior citizen investors.

Adhil Shetty, CEO, Bankbazaar.com, says, “FDs may offer more flexibility in terms of liquidity compared to Post Office Deposits. Most banks and financial institutions offer premature withdrawal of FDs, but it may attract a penalty. On the other hand, Post Office Deposits may have limited liquidity options. Both Post Office Deposits and FDs are considered safe investment options. Investors should consider their investment goals, risk tolerance, and investment horizon before choosing between Post Office Deposits and FDs.”

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INTEREST RATE COMPARISON

The interest rate on post office time deposits and the bank FDs both are calculated with quarterly compounding of interest. Interest on bank FD depends on the policy rate decision taken by the RBI from time to time, whereas interest on post office time deposits is revised every quarter. 

Here’s the comparison table showing the best interest rate offered by some of the banks and the highest interest on post office FD. It shows that interest on the post office FD is slightly higher than the public sector banks whereas lower than the best rate offered by the private sector banks.

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Interest rate on bank/post office FD is shown in the table; Highest interest rate offered on bank/post office FD irrespective of the tenure, for deposit up to Rs 2 crore, is considered. Selective banks are included in the table. Data taken from respective bank’s website and Indiapost.gov.in, as on 6th April 2023. Data strictly for illustrative purposes.

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Compiled by BankBazaar.com

If you are a senior citizen investor, banks can offer you a higher interest rate compared to post office FDs. If you are very specific about the investment tenure, then again bank FDs offer more choices compared to post office deposits. However, before selecting between the bank or the post office FD, you must check their suitability with your financial goal and choose the one that helps you achieve your goals on time.