Post Office Fixed Deposit (POFD) or Post Office Time Deposit (POTD) is the oldest and preferred form of investment offered by the Indian Postal Services. They are considered as safe as the Government of India backs them. Hence it was a famous investment avenue for the previous generations.

Post Office Fixed Deposit (POFD) is similar to a bank deposit where the money is deposited for a fixed tenure and interest rate. The higher the investment tenure, the higher is the interest rate offered. The investor can earn a guaranteed return on the money deposited. Post office FD has four tenures available – 1, 2, 3, and 5 years. Each has its interest rate. The interest is payable annually but calculated quarterly. The interest paid by the post office is subject to TDS. A 5-year post office FD qualifies for tax saving under section 80C of the Income Tax Act.

The investor has to invest a minimum of INR 200 and after that in multiples of INR 200. Only one fixed deposit is allowed per account. However, multiple accounts can be opened in post offices. One can also open a post office FD in all public and private sector banks. A post office FD is transferable from one post office to the other. A post office FD cannot be withdrawn in the first six months of deposit. After that, premature withdrawal is available at a penalty of 1%. Upon maturity, the post office FD can be renewed for the same tenure or can be withdrawn. Post Office FD best suits highly conservative investors who want to invest a lumpsum amount. The interest rates offered by post office FDs are sometimes higher than Bank FDs. An investor can take a loan against FD by pleading the post office FD

Post Office FD Interest Rate

The government sets the rates of POFD at the start of each quarter. For January 2020-March 2020 quarter, the following rates have been decided.

Once invested, the interest remains constant for the entire duration of the deposit. The interest rate offered by POFD is sometimes higher than bank FDs. The interest is payable annually but calculated quarterly and is paid either through cash or cheque. The interest is subject to TDS. If no TDS is deducted, then the same has to be shown while filing income tax returns. For senior citizens, there is no additional interest; however, the interest received up to INR 50,000 is tax-exempt under Section 80TTB.

The interest earned annually on post office FD can be directed to post office savings account and earns a 4% interest per annum. The investor can also direct the monthly interest payments to a 5-year Post Office Recurring Deposit. In both cases, the savings account has to be in the same post office. Upon premature withdrawal after six months but below one year, the interest applicable to a savings account will be earned by the investor. But after that, the investor.