Which Offers the Maximum Return: Post Office Time Deposit vs. Tax-saving FD?

Since the benefits are set and guaranteed, tax-saving fixed deposits are the preferable option for most people looking to reduce their taxable income.

Post Office Term Deposits are another investment option that entices investors, even if tax-saving FDs are an attractive substitute. The government modifies modest savings plan interest rates every quarter.

For the April–June 2024 quarter, the rates on all 10 modest savings plans—including the 5-year Post Office Time Deposit (POTD)—remain constant. Several banks also provide tax advantages for their 5-year fixed deposits.

Here is a comparison between 5-year POTD and tax-saving fixed deposits offered by major banks:

Fixed Deposits That Save Taxes:

One kind of fixed deposit (FD) that allows you to save taxes under Section 80C of the Income Tax Act of 1961 is a tax-saving FD account.

By making an investment in this account, you may deduct up to Rs 1.5 lakh annually. It has a five-year lock-in term and taxes the interest earned at 5.5% to 7.75% of the amount received.

This lock-in period prevents you from taking early withdrawals. For fixed deposits that save taxes, banks provide varying interest rates. All nationals of India are eligible for an interest rate of 6.50% from the State Bank of India (SBI). HDFC Bank and ICICI Bank provide 7% interest rates on tax-saving FDs. For tax-saving FDs, DCB Bank provides a 7.75% interest rate, while IndusInd Bank offers 7.25%.

Time Deposit at the Post Office (POTD):

Under Section 80C of the Income Tax Act of 1961, there is an additional tax advantage for investing in a five-year Post Office Time Deposit (POTD). You are eligible for a tax deduction of up to Rs 1.5 lakh if you invest in a 5-year POTD.

You may choose a fixed deposit period that best suits your financial objectives: one, two, three, or five years.

A portion of your money may be withdrawn prior to the fixed deposit maturing, but only within six months of the original deposit date.

For the April–June 2024 quarter, the interest rate on POTD is 7.5%. You may invest in multiples of Rs 100, with a minimum of Rs 1,000 available for investment.