Post office time deposits rate hiked, PPF still remains attractive

With the beginning of the New Year 2019, the good news has knocked the door of the public interested to invest in Post Office saving schemes.

The interst rate on time deposits issued by Post Office has been increased by 10 basis points (bps) from January – March 2019.  According to a circluar issued by Ministry of Finance, interest rates of other small saving schemes issused by Post Office including Public Provident Fund (PPF), Kisan Vikas Patra (KVP), Recurring Deposit (RD), etc. have been kept unchanged.

Post Office revised interest rates

The one year Post Office term deposit will now fetch 7 per cent, increased from 6.9% in the previous quarter. While the interest rates on term issued of three years have been reduced by 20 bps to 7 per cent. Interest rates on two year and five-year deposit rates have been kept unchanged at 7 per cent and 7.8 per cent, respectively. Mentioned below are the interest rates on small savings scheme for the quarter ending March 31, 2019.

The interest rates on other Post Office saving schemes such as Senior Citizen Savings Scheme (SCSS) will continue to fetch 8.7 per cent. The interest rates were revised in the previous quarter up to 40 bps on various small saving schemes. The interest rates have been benchmarked to the yields of the government bonds of the same maturity.

To invest in the Post Office saving scheme, the customer has to visit the nearby branch of the Post Office, just like every other fixed deposit. The time deposits can also be transferred from one Post Office to another. The csutomer can extend the time deposit on maturity or redeem it, whenever needed. The time deposit not only money into your kitty, but allows tax deduction under section 80C of Income Tax Act.

Are the interest rates offered by Post Office better than private banks such as HDFC, ICICI, SBI?

Here’s a bird’s eye view of the interest rates offered by banks.

FD interest rates offered by HDFC Bank

As depicted below, HDFC bank offers 7.30 per cent for a fixed deposit (FD) of one year. However, the interest rates for an FD up to 5 years is 7.25 per cent.

FD interest rates offered by SBI Bank

SBI Bank offers interest rates up to 6.85 per cent on FD made for one to five years.

FD interest rates offered by ICICI Bank

ICICI Bank, one of the largest private bank, offers 6.75 per cent and 6.90 on FD made for 290 days to less than one year 1 year to 389 days, respectively.

The bank offers a highest interest rate of 7.50 per cent on FD made for 2-3 years. The tax saver FD offered by ICICI bank now offers an interest rate of 7.25 per cent.

From the above analysis, it can be concluded that private banks offer much less interest rates offered by Post Office term deposits on FD for 5 years while there is a marginal difference on interest rates up to three years. Also, the Post Office term deposits are compounded on a quartley basis, thus giving a higher return compared to private banks.

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