Post Office FD vs Bank FD: Which is a better investment option?
If you are planning to invest in Fixed Depot and searching where to invest, either in Post Office FD or Bank FD, here we will check and find out Post Office FD or Bank FD which is a better investment option for you,
Both Post Office FDs and Bank FDs are safe and relatively stable investment options for your hard-earned money. However, there are some main differences between the Post Office FD and Bank FD that you should consider before making any investment decision in these schemes.
Interest Rates offered by PO FD VS Bank FD
Post Office FDs normally provide higher interest rates as we can check, the interest rate on a 5-year Post Office FD is currently 7.5%, while the interest rate offered by various Private sector or public sector banks for 5-year Bank FD is typically between 6% and 7%.
Post Office FD VS Bank FD- Safety of your Investment
Post Office FDs and Bank FDs are backed by the government of India. However, Post Office FDs are considered to be much safer because they are backed by the sovereign guarantee of the Government of India. Where as Bank FDs, are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to a limit of ₹5 lakhs including interest on the FD. Hence your whole FD amount invested in the Post Office is fully secured.
Tax Benefits of Post Office FD VS Bank FD
5-year FD of Post Office and Banks are eligible for tax benefits under Section 80C of the Income Tax Act. However, this is within the overall limit of deduction of ₹1.5 lakhs from your taxable income if you invest in a Post Office FD or Bank FD.
Flexibility
Bank FDs have a tenure ranging from 7 days to 10 years, while post office fixed deposits have a tenure of 1 year, 2 years, 3 years, and 5 years. Hence as per flexibility, bank FD has more options to invest FD. Additionally, you may be able to withdraw your money from a Bank FD before the maturity date without penalty in some cases.
However premature withdrawal penalties depend on the bank to bank, for example in the case of ICICI bank’s FD for deposits less than Rs 5 crore, the penalty is 0.50% for withdrawals before 1 year, 1.00% for 1 to 5 years and 1.00% to 1.50% for 5 years and above.
Post Office FD Premature withdrawal example:-
Bank FD Premature withdrawal example:-
Online investment facility:-
Now post office also provides the facility of Post Office SB net banking, if you have a Post Office savings bank account and have the net banking facility activated, you can open and close the FD account online without visiting the PO Branch. Banks have already been providing online facilities to their customers.
Higher Interest Rates for Senior Citizens:-
Compared to post office, banks always offer higher interest rates for senior citizen, whereas Post Office has the same interest rate for all age citizens. If your investment amount is up to Rs.5 lakh it’s better to invest in the bank for a higher return.
Which option is right for you?
The best investment option for you will depend on your requirements for money and investment goals. If you are looking for the highest possible interest rate with full security of your money, then a Post Office FD may be a good option for you. However, if you are looking for more flexibility or facility, then a Bank FD may be a better choice.
Below table summarizing the differences between Post Office FDs and Bank FDs:
Post Office Bank
Is Post Office FD 100% safe?