Post Office Time Deposit Account (POTD) is one of the most well known investment schemes offered by the India Post. While the scheme is open to all individuals, it is particularly popular in rural and remote areas of the country that are relatively under-banked and have limited access to investment products.
Post Office Time Deposit Scheme Interest Rates
The Indian Finance Ministry reviews the interest rates on the scheme in the beginning of every quarter of the financial year. The interest rate is decided based on the yield on government securities and usually has a spread over the government-sector yield.
Following are the interest rates of the post office time deposit account applicable from 1st Jan 2019 to 31st March 2019*:
|Account Tenure||Applicable Interest Rate|
*The above interest rates are reviewed every quarter by the Finance Ministry
In case you do not wish to withdraw the interest annually, you can instruct the post office to redirect it to your post office savings account, that earns 4% interest p.a. However, this cannot be done in case of POTD with 1 year tenure.
Alternatively, you may also choose to redirect this interest to a 5-year recurring deposit account in the same post office or bank in lieu of payment of 12 monthly installments. In this case, the depositor will be required to give a fresh application to the office or bank before the due date on which interest falls due for payment.
Features of Post Office Time Deposit Scheme
Mentioned below are the key features of the post office time deposit scheme-
- Deposits under post office time deposit schemes can have tenure of 1, 2, 3 or 5 years, and only one deposit can be made in one account
- This post office scheme promises assured returns on the account holder’s investments
- The time deposit accounts can be easily transferred from one post office to another
- Time deposit accounts can be either solely operated or jointly held
- Account holders can extend the duration of a time deposit account upon its maturity
- If proceeds of a mature account are not withdrawn, the account will be automatically renewed for the original deposit tenure at applicable interest rates as on the date of maturity
- There is no cap on the number of time deposit accounts that can be opened
- Minimum deposit required to invest in the Post Office Time Deposit scheme is Rs.200. However, it must be noted that the amount to be deposited should be in multiples of 200 only. If not, the amount in multiples of 200 will be retained in the account and the balance will be refunded without any inetrest
- The central government has recently authorized all public sector banks and some private banks like ICICI Bank, Axis Bank, and HDFC Bank to allow investors to open POTD accounts
- Investors may consider POTD investments as alternates to Bank Fixed Deposits
In order to be eligible to open a Post Office Time Deposit Account, the following criteria must be taken into account-
- All resident Indians can open and operate this account either singly or jointly
- A minor aged 10 years or more can open and also operate this account
- A parent/guardian can open a Post Office Time Deposit account on behalf of a minor
- Non-resident Indians are not allowed to open a Post Office TD account
The following groups/funds are not allowed to avail the Post Office Time Deposit Scheme-
- Institutional account holders
- Trust funds
- Regimental funds
- Welfare funds
Advantages of Post Office Time Deposit Schemes
The following are key benefits of investing in a Post Office Time Deposit account:
- Post Office Time Deposit Scheme provides guaranteed return on investment
- 5 Year Time Deposits qualify for tax deduction under Section 80C of the Income Tax Act
- Even minors aged 10 years and above can operate the account by themselves
- Nomination facility is available
- The investments are quite flexible and be made with an amount as low as Rs. 200 and with no maximum investment limit
- Accounts can easily be transferred from one post office to another
- Premature withdrawal of deposits is allowed
- POTD investments are considered safer than FDs as the principal amount invested and the interest earned are backed by sovereign guarantee
- There is no cap on the maximum number of accounts that can be opened in any post office
In order to open a term deposit with India Post, you must furnish the following documents-
- SB13 (pay-in slip)
- Specimen Signature Slip
Taxation Benefits under POTD
Small saving investments in post offices do not involve any tax deduction at source (TDS). It must be noted that the interest earned on these investments is added to the depositor’s total annual income in the year of receipt and is liable to be taxed as per the tax rate of the investor.
However, deposits made for the 5-year tenure are eligible for tax benefits under Section 80C of the Income Tax Act.
Premature Withdrawal of POTD Funds
Post office time deposit account permits its account holders to withdraw funds even before its maturity. The only applicable condition is that a minimum of 6 months must have been passed from the date of first deposit in order to qualify for premature withdrawal. The following are key terms and conditions in case of premature withdrawal of a Time Deposit-
- If premature withdrawal of 1/2/3 or 5 year POTD is made after completion of 6 months but before completion of 1 year from date of time deposit account opening, simple interest is payable as per Post Office Savings Account interest rate
- If premature withdrawal of 1/2/3 or 5 year TD account is done after 1 year from date of account opening, the applicable interest rate is 1% lower than the interest rate corresponding to the tenure the account was originally booked for
Who should Invest in POTD
Investors who are looking for alternatives to Bank Fixed Deposits may consider investing in Post Office Time Deposit Schemes as the latter offers higher interest rates than the ones offered in fixed deposits.
Additionally, if you are an ultra conservative investor with zero tolerance of risk and assured returns, you may choose to invest in these schemes.
Ques. What is the minimum amount required to open a POTD?
Ans. A Post Office Term Deposit can be opened with an amount as low as Rs.200.
Ques. Can I avail tax benefits by investing in POTD?
Ans. Investors can avail tax benefits in POTD only if the tenure of the deposit is 5 years.
Ques. Can I transfer my term deposit from one post office to another?
Ans. Yes, you can do so by submitting either a manual application to be post office or by using the prescribed SB10(b) form.
Ques. Is premature closure of POTD allowed?
Ans. Yes, you can close your term deposit prematurely. To do so, your account should have been active for the last 6 months. If the withdrawal is made between 6 months and 1 year, simple interest is payable as per Post Office Savings Account interest rate. If the withdrawal is made after 1 year of opening the account, the applicable interest rate would be 1% lower than the interest rate corresponding to the tenure the account was originally booked for.