Post office TD vs PSU bank 5-year FD: Where can you get higher maturity on Rs 2 lakh investment?

Investors looking for fixed-income investment options often compare interest rates offered by banks, post office and small finance banks (SFBs). If we talk about 5-year FD interest rates, the Post Office TD scheme is currently offering a higher interest rate than the rates offered by most leading public sector banks, which can translate into a higher maturity amount on a Rs 2 lakh investment.

The 5-year Post Office Time Deposit currently offers a 7.5% annual interest rate, while most major PSU banks are offering around 6%-6.25% interest rates on a regular 5-year FD to general citizens.

PSU Banks/Post Office	Interest Rate (%)	Return (Rs)	Maturity (Rs)
Post Office TD	7.50%	89,990	2,89,990
Bank of Baroda	6.30%	73,380	2,73,380
Canara Bank	6.25%	72,708	2,72,708
PNB	6.10%	69,504	2,69,504
State Bank of India	6.05%	70,035	2,70,035
Bank of India	6%	69,371	2,69,371
Indian Bank	6%	69,371	2,69,371
Bank of Maharashtra	5%	56,407	2,56,407

Interest rate source: Post office website/Paisabazaar
Calculator used: Groww

The Post Office TD scheme stands out clearly, generating an estimated return of nearly Rs 90,000 over five years and a maturity value close to Rs 2.9 lakh. Also note that the investment under a 5-year TD qualifies for tax benefits under the old tax regime.

Also read:

Post office TD: Low-risk investment

Post office FD, like many of its other schemes, has sovereign backing by the government, which means the government itself guarantees the repayment of both the invested amount and the interest. Bank fixed deposits are insured up to Rs 5 lakh, including both principal and interest, under the DICGC insurance scheme.
Investors should also take into account factors such as liquidity, convenience of online banking, premature withdrawal rules and customer service before making a choice between a Post Office TD and a PSU bank FD.

TDS on FD interest

If the annual interest received on FD(s) surpasses Rs 50,000 for all residents, TDS (Tax Deducted at Source) is deducted at a rate of 10%. The TDS rate rises to 20% if one doesn’t have a PAN card.

Can you close the post office TD account prematurely?

As per the India Post website, “The 5-year TD account cannot be prematurely closed till the completion of four years from the date of deposit. Further, if the account is closed after completion of four years, interest applicable to a Post Office Savings Account shall be payable.”

Post office FD interest rate review

The Post Office Time Deposit interest rate is revised every quarter by the government. Banks revise FD interest rates anytime with or without an announcement.