Rs 2 lakh investment: Post Office TD or PSU bank FD? Check which option gives higher maturity value

The 5-year post office Time Deposit (TD) scheme currently offers 7.5% annual interest, while most major PSU banks are offering 6% to 6.25% interest on regular 5-year fixed deposits for general citizens. The difference in rates can significantly impact long-term maturity value.

The table above compares the maturity amount and returns from a Rs 2 lakh investment in a post office TD and a PSU bank 5-year FD.

At the current interest rate, the 5-year Post Office TD can generate a maturity value of nearly Rs 2.9 lakh on a Rs 2 lakh investment. The estimated gain over five years is almost Rs 90,000 before tax. Also, investments in 5-year Post Office TDs qualify for tax benefits under the old tax regime.

Post office Time Deposits carry sovereign backing, which means repayment of principal and interest is guaranteed by the government. In comparison, bank fixed deposits are insured up to Rs 5 lakh, including both principal and interest, under the DICGC insurance scheme.

Apart from interest rates, investors should compare liquidity, premature withdrawal rules, online banking convenience and customer service before choosing between a Post Office TD and a PSU bank FD.

If annual interest earned from fixed deposits exceeds Rs 50,000, banks deduct TDS at 10% for PAN holders. The TDS rate increases to 20% if the depositor does not provide a PAN card.

According to India Post rules, a 5-year TD account cannot be closed before the completion of four years from the deposit date. If closed after four years but before maturity, interest applicable to a Post Office Savings Account will be paid instead of the TD rate.