The post-office term deposit (POTD) is similar to a bank fixed deposit as it allows investors to save money for a certain period of time while earning a guaranteed return. The maturity amount is the sum of the capital deposited and the interest earned at the end of the deposit's term.
Risks and Investment goals
The POTD's principal goal is to provide a guaranteed return on the deposit, based on the deposit's term. This investment has no risk attached to it.
Because the plan has the government backing it, the deposits are safe and secure, with guaranteed returns.
Protection against inflation
The POTD is not inflation-protected. This means whenever inflation exceeds the promised interest rate, the scheme's return would be negative. Whereas, when inflation is less than the return, investors can enjoy a positive rate of return.
The person should be a resident of India and preferably with a post office savings bank account. There is no age limit and a minor above the age of 10 years can open his/her account directly.
Amount to invest
A minimum amount of Rs. 1,000 needs to be invested and multiples of 100 thereof. There is no maximum limit on investment though.
The tenure can be of 2, 3 or 5 years.
Account holding categories
An account can be held by an individual person and by a minor through the guardian. There is also an option of a Joint account.
Guarantees related to POTD
The rate of interest on the POTD is guaranteed for the term chosen. It ranges from 5.5 per cent for a one-year deposit to 6.7 per cent for a five-year deposit at the moment. This deposit's interest rates are announced every quarter and are aligned with G-sec rates of equivalent maturity, with a 0.25 per cent spread. After making an investment, however, the rates stay unchanged during the tenure of deposit.
Despite the deposit lock-in, the POTD is liquid. The deposit can be used to borrow money or the deposit can be withdrawn early.
Deposits having a term of fewer than five years do not qualify for a tax break. The five-year deposit is eligible for a Section 80C tax deduction on the amount deposited.
Some more features
- After six months of making the deposit, a premature withdrawal or closure of the POTD is permitted.
- Withdrawals made after six months but before the end of the year will result in a 4 percent interest rate. Withdrawals after a year yield 1 percent less than the deposit for that term.
How to open an account?
Once you have selected the post office to open the POTD account, you can open a POTD with the following documents:
- The post office provides a deposit-opening form.
- Aadhaar card; copy of passport; PAN (permanent account number) card or declaration in Form 60 or 61 as per the Income Tax Act, 1961; driving licence; voter's ID; or ration card are examples of address and identity verification.
- Bring genuine identification with you to verify your identity when you open an account.
- To complete the procedures, choose a candidate and obtain a witness signature.
- Time deposits can be opened online by post office savings account holders who have access to internet banking.
How to operate the account?
- To be credited into your account, you'll need a pay-in-slip containing the initial deposit-opening sum.
- You can pay with cash or a cheque. If you have an active internet banking account linked to a post office savings account, you can make the payment using that account.
Some other points to remember
- Account portability is possible between post offices.
- There is the option of extending the deposit at maturity.
- Interest is a taxable source of income.
- For a maximum of two years, maturity proceeds that are not drawn are eligible for the savings-account interest rate.
Given that the conditions of a Time Deposit Scheme are suitable for a short-term investment, with the promise of guaranteed returns, it makes for a profitable avenue to park one’s savings.