Government-backed post office FD plans are safe and popular as they offer guaranteed returns but modest returns only. The post-tax returns with post office FDs are unable to beat inflation. Therefore, in the long run, your money will lose its value and expenses will increase.
Without inflation-adjusted returns, that too at a modest rate of returns, it will be hard to achieve your financial goals. Equities have this much potential but for investors with a high-risk appetite only. Thus, there is a need for an investment offering higher interest rates and corpus safety as well.
Non-Banking Financial Company (NBFC) FDs can fulfil such requirements. NBFCs fixed deposits, also known as company FDs, offer higher interest rates than post office FDs. You can invest in the NBFC FDs with higher credibility ratings by credit rating agencies like CRISIL and ICRA.
Let us go through the comparison between Post Office FDs and NBFC FDs
Post Office FDs vs NBFC FDs
NBFC FDs offer a higher interest rate than post office FDs. Post office schemes, term deposits, can provide interest @ up to 6.7%. On the other hand, NBFC like Bajaj Finance is offering interest rates up to 7.25% as on Feb 2021. With a higher interest rate, financial goals are easy to achieve.
Company FDs are flexible to tenor. Most NBFCs offer FD plans for 6 months to 3 years. Whereas Post office FD plans are available for 1 year, 2 years, 3 years, 5 years only. Thus company FDs are flexible enough where you can invest in FDs for a few months as well as per your liquidity needs and financial goals.
When you are in need for your funds invested in an FD, post office FDs will disappoint you, especially, if you have invested in the 5-year FD. Post offices do not allow you to withdraw its 5 year FDs before the maturity date. And for FDs with other tenors, you need to wait for at least six months to withdraw it. On the other hand, most company FDs can be withdrawn after three months of opening the FD account, such as in the case of Bajaj Finance FD.
Senior Citizen Fixed Deposit
Senior citizens are offered higher interest rates on fixed deposits. Bajaj Finance FD offers 0.25% additional interest rates over and above normal interest rate for non-senior depositors. On the other hand, post office FDs do not offer extra interest benefits for senior citizens. However, post office senior citizens schemes are available separately.
With post offices, you can open a Term deposit account with Rs.1,000 in the multiples of 100. There is no maximum limit. In the case of NBFCs, the minimum and maximum deposit limit vary from company to company.
Company FDs attract TDS if your annual interest income exceeds Rs 5,000. On the other hand, with post office FDs, the threshold limit is Rs 50,000.
- Online Facility
Post offices do not provide an online Facility to open a fixed deposit account. But NBFCs offer online FD account facility.
Post office fixed deposits – A suitable investment option
Following are some of the highpoints of post office fixed deposits, also known as term deposits that make them a suitable investment options for future financial goals.
- Post office FDs are available in 1-year, 2-year, 3-year, and 5-year term options, with income tax benefits for 5-year FDs under section 80C of the Income Tax Act 1961.
- Post office FD rates are higher than on many other savings and investment schemes offered by India Post.
- Investors have an option to avail interests earned on FDs annually in their savings account.
- You can start a post office FD with a small amount of Rs.1,000 with no limit to maximum investment.
- Investors can opt for Monthly Income Scheme as an FD variant to generate periodic income through lump-sum investment. Post office FD rates under this scheme are applicable at 7.6%.
- Post office fixed deposits can also be opened for minors above 10 years of age along with a guardian. Thus, it is also available as an investment option to ensure your child has a secure future.
- The scheme allows conversion of a single account to a joint account and vice versa. You can thus add or remove a participant to your FD account as and when needed.
- You have an option to extend the term of your fixed deposit via an application to your concerned post office. This provides flexibility for changes to revised financial goals.
A post office FD thus serves suitably to help create a substantial corpus and fulfil financial needs in the future.
As for post office FD rates, you can earn returns at the rate of 6.9% in the case of FD investments of 1, 2 or 3 years. FDs for a 5-year term help you earn interest at the rate of 7.7%.
Interest calculation and payment for post office FD
Interest is calculated quarterly for post office FDs but is payable annually. You have an option to avail disbursal of the interest income to your preferred financial account at the end of each year throughout the tenor or the total amount on the term’s maturity.
Investors can also make a premature withdrawal of their post office FD against a nominal penalty payment.
For a more flexible investment option, individuals can consider the Bajaj Finance Fixed Deposit. It is an investment instrument that allows you to maximise earnings via cumulative and non-cumulative FD options. Plus, it brings higher and assured yields along with additional benefits for senior citizens with interest rates of up to 8.35%.
Other benefits of the investment option include facilities like multiple deposits, periodic payout option, loan against FD, flexibility in the choice of tenor and more. The plan has also acquired the highest stability ratings to ensure your investment is risk-free.
While post office FD rates are attractive, it is essential to compare them with other options for FD investment to make an informed decision and select a suitable financer. Choosing the right financer not only ensures your future is financially secured but also eases the accessibility and management of your funds.
The Bottom Line
Whether your goal is saving for financial emergencies or creating a corpus with fixed deposits’ compound interest, fixed deposit is the most suitable low-risk investment. If you want to earn higher interest through a secure investment avenue, fixed deposit (FD) with Bajaj Finance is your go-to investment.
Bajaj Finance has increased the fixed deposit rates recently, applicable from 1st Feb 2021. Their safety ratings, online facility to open FDs, flexible tenor from 12-36 months and higher interest rates attract depositors the most.
Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at Highlight Story.