Post office savings schemes have always been the first choice for investors seeking safe returns and zero risk. Whenever it comes to safe investment of small savings or lump sum, two post office schemes are most talked about—RD (National Savings Recurring Deposit – RD) and TD (Post Office Time Deposit – TD), also known as Post Office Fixed Deposit. In both the schemes, interest is guaranteed by the government, but the way of working, method of investment, maturity period and interest rates of both are completely different.
If we compare in terms of interest rate, Post Office Time Deposit (TD) is clearly giving more interest than RD. Post Office’s 5-year RD currently offers 6.7% annual interest (compounded quarterly). Whereas in Time Deposit (TD), interest ranging from 6.9% to 7.5% is being given according to the tenure:
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1-Year TD Account: 6.9% annual interest
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2-Year TD Account: 7.0% annual interest
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3-Year TD Account: 7.1% annual interest
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5-Year TD Account: 7.5% annual interest (most)
If you have lump sum capital available and want to invest for 5 years, the 5-year TD will earn interest of 7.5%, which is 0.80% higher than the 6.7% of RD.
| scale | Post Office RD | Post Office TD (TD / FD) |
| type of investment | Fixed installment every month (SIP style) | Lump Sum Investment |
| current interest rate | 6.7% per year | 6.9% to 7.5% per annum |
| Tenure | Essentially 5 years (60 months) | 1 year, 2 years, 3 years and 5 years |
| interest calculation | Quarterly Compounding (Payment on Maturity) | Quarterly compounding (paid annually) |
| minimum investment | ₹100 per month | ₹1,000 lump sum |
| maximum investment | no maximum limit | no maximum limit |
| Tax Exemption (80C) | no tax exemption | 80C exemption up to ₹1.5 lakh only on 5-year TD |
Post Office Recurring Deposit Scheme is ideal for salaried people and small businessmen who have regular monthly income and want to save every month:
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input range: Account can be started with a minimum of ₹100 per month (in multiples of ₹10). There is no limit on maximum investment.
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Installment Deposit Time: If the account is opened between 1st to 15th of the month, then the installment has to be deposited by 15th of every month. Installment can be deposited till the last day of the month in accounts opened on or after the 16th.
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Loan facility: Loan up to 50% of the deposited amount can be taken after deposit of 12 regular installments and completion of 1 year of account.
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Pre-mature closure: After completion of 3 years of account opening, it can be closed prematurely, although interest on it is given at the rate of savings account. On completion of 5 years, it can be extended for further 5 years.
A time deposit scheme works like a bank FD, where the entire capital is deposited at once:
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input range: Minimum investment of ₹1,000 is mandatory (in multiples of ₹100). There is no restriction on maximum deposit.
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Method of interest payment: Interest is calculated on quarterly compounding basis, but the actual payment of interest is credited to the investor’s savings account on an annual basis.
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Benefits of tax exemption: There is no tax exemption on TD of 1, 2 and 3 years, but 5-year TD On investing in, one gets the benefit of tax deduction up to ₹ 1.5 lakh under Section 80C of the Income Tax Act. However, the interest received is taxable as per the slab.
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Premature Withdrawal: Withdrawals are not allowed for the first 6 months of account opening. Normal savings account (4%) interest is available on closure between 6 months to 1 year.
If you have a lump sum amount from bonus, land sale, retirement or savings in your bank account, 5-Year TD (7.5% Interest) This is the best option as it gives you the highest guaranteed interest along with a tax exemption of 80C.
Conversely, if you want to make a habit of saving ₹1,000, ₹5,000 or ₹10,000 every month from salary or daily business, then Post Office RD (6.7% interest) This will prove to be the most convenient and disciplined saving instrument for you.