Fixed deposit is a secure way to create a corpus for your financial goals. The deposit offers a fixed interest rate irrespective of market fluctuations. So, it can be considered as a low-risk investment option that provides assured returns. FDs are offered by banks, Non-Banking Financial Companies (NBFCs) and even post offices.
In fact, given the reach of post offices in India, such schemes have become very popular among investors. However, in post offices, FDs are known as National Savings Time Deposit Accounts. Similar to bank FDs, the interest rate is fixed and reviewed regularly.
Investing in the post office FD scheme can be done online or offline. The online mode is convenient and hassle-free. So, let’s understand how to make an online FD in a post office.
Post Office FD Scheme
The post office FD scheme is a savings scheme that offers assured returns on your deposits. You can opt for the plan through any post office in India. There are four tenures to choose from, and the minimum amount for opening the account is Rs.1,000.
The FD scheme of the post office allows various benefits like extending the maturity tenure, flexibility to pledge the deposit for a loan and even premature closure. If you invest in the 5-year deposit scheme, you can also opt for tax deductions on your investments under Section 80C of the Income Tax Act, 1961.
Features of Post Office FD Scheme
Here are some of the salient features of the National Savings Time Deposit Account, popularly called the post office FD scheme:
- Amount of deposit
While the minimum deposit amount is Rs.1,000, there’s no maximum limit. You can deposit any amount in multiples of Rs.100.
- Deposit tenure
The post office FD scheme is offered for terms of one, two, three and five years.
- Extension of the deposit term
You can extend the maturity date of the FD scheme. The extension term would be the same as the deposit term. For instance, suppose you opened an account with a tenure of 2 years and now want to extend the maturity period by another 2 years. In such a case, you can inform the post office either at the time of account opening or during the tenure. In the latter case, you must submit the request for an extension within a specified time frame.
- Premature closure or withdrawal
Early closure is allowed only after the first six months of investment. If you close the account before a year, your deposits will attract the applicable post-office savings account rate. However, if you choose to close the account after a year, the interest rate would be reduced by 2% for each completed year of deposit. For the remaining months, the savings account interest rate would apply.
Let us simplify this with an example. Say you close the account after 1 year and 6 months when the prevailing FD interest rate is 5.7%; you would earn 3.7% interest for one year and savings account interest for the next six months.
- Pledging the FD
You can pledge your FD account as collateral to secure a loan.
How to Open FD in Post Office Online?
The Department of Posts (DoP) offers the facility to open online FD in the post office. However, this facility is available only for registered users. The process is as follows:
- Visit the India Post e-banking portal.
- Log into your net banking account by entering your user ID, password and the displayed captcha code.
- Choose ‘Service Request’ under the ‘General Services’ tab.
- Follow the on-screen directions and click on the ‘New Request’ option to initiate the Post Office Time Deposit opening request.
- Choose the deposit tenure and make the requisite payment, and your FD account would be opened.
If you are not a registered user, you can open the FD account offline by visiting the post office and completing the account opening formalities.
India Post also has a mobile application which allows you to open an FD account online. You can download the mobile application on your Smartphone, register yourself and choose the deposit scheme. After this, select the deposit tenure, enter your details, pay the deposit amount online, and open the account.
The post office fixed deposit account offers annual interest payouts even though the interest is compounded quarterly. Moreover, the interest rates are determined by the government and reviewed quarterly. When you open a fixed deposit account, the applicable interest rates at that time will apply to your account. This rate remains the same throughout the deposit tenure.
The interest rates for the October – December 2022 quarter are as follows –
|Deposit term||Interest rate|
Eligibility and Documents Required
Let’s understand the eligibility criteria and the documents required to open an online FD in the post office:
- Eligibility criteria
- An individual aged 18 and above can open the account in their name.
- Joint accounts can be opened by up to three individuals.
- A guardian can open an account on behalf of a minor or an individual of unsound mind.
- A minor aged 10 or above can open the account in their name.
- One individual can open multiple accounts.
- Documents required
Documents should be self-attested
- Duly-filled account opening form.
- Recent photographs of the depositor.
- KYC documents, including identity proof and address proof.
- PAN card, in specific cases.
A post office fixed deposit account is beneficial as it offers assured returns and helps inculcate a savings habit. Moreover, as a tax-paying individual, you can claim deductions on investments up to Rs.1.5 lakhs by opting for the 5-year FD scheme. So, post office FD can be considered as a low-risk investment option and it is ideal for the investors with low risk appetite.
When it comes to opening an account, the online mode helps you navigate the process in a hassle-free manner. All you need to do is use the net banking facility of the post office or download the mobile app; it is simple, quick and allows you to start a fixed deposit account instantly.
Does the interest in a post office FD account accumulate over time?
The post office fixed deposit scheme is not a cumulative fixed deposit scheme, meaning the interest income does not accumulate over the deposit tenure. The interest is compounded quarterly and paid every year.
You can submit an application at the post office to have the interest income credited to your savings account.
What is the time frame for choosing the extension facility during the deposit term?
If you want to extend the maturity period, you should make an application to the post office within the below-mentioned time frames:
1. For a 1-year account – within 6 months of the maturity date.
2. For a 2-year account – within 12 months of the maturity date.
3. For a 3 or 5-year account – within 18 months of the maturity date.
What documents are needed for the premature closure of the fixed deposit account?
You must submit the relevant closure application form and your passbook to the post office for premature closures.
Is interest income from Post Office FDs taxable?
Yes, the interest income will be taxed under the head – income from other sources; the tax rate would be equal to your tax slab rate. If the annual interest earnings is more than Rs. 40,000 then 10% TDS will be deducted. For senior citizens, however, the interest income is allowed as a tax-free deduction under Section 80TTB of the IT Act, 1961, and they can claim a deduction of up to Rs.50,000 on their interest income.
What is the maximum amount of investment into the post office fixed deposit account?
There is no restriction on the maximum amount of investment. You can invest any amount provided it is at least Rs.1,000 and in multiples of Rs.100.