When the only aim of investing is saving money for the future, one might wonder why there is a myriad of schemes and instruments in the market. It is quite obvious that the investment income is utilized for future expenses, but the investment goals differ amongst investors. Henceforth, we have schemes customized as per individual’s objectives, income, time horizon and risk appetite. For instance, people who are at the beginning stage of their career and want to build a corpus over time might be ready to get exposed to higher risk. They might choose to invest in equity over other schemes. Contrastingly, for people who possess low-risk appetite and look for guaranteed returns might opt for different tools and schemes. Fixed Deposits are one such option, which provides low-risk returns to the investors. While any individual can open an FD account in a bank or a post office, let us take a close look at their prospects.
The period of investment in a Bank FD ranges from 7 days to as long as 10 years. The interest rate on the Bank FD schemes depends on these investment tenures. On the other hand, Post Office FD comes in tenures of only 1,2,3 & 5 years.
Usually, most of the Post Office Saving Schemes provide higher rates of interest than Bank schemes. For the Fixed Deposits, Banks provide interests ranging from 3%-8% depending on the lending bank & time horizon. As of now, the interest on a 5-year Post Office FD is 6.70% and the rate on 1,2 & 3-year Post Office FDs is 5.50%. This is slightly better than the rates on top banks of corresponding investment tenure. Moreover, the Bank FD rates tend to change based on the rates announced by the RBI. Interest rates on Post Office FDs are determined by the government on a quarterly basis.
The investments made in post offices are considered to be more secured as India Post is backed by the government. Though there is no sovereign guarantee for the Fixed Deposits in Banks, they are also considered as a safe investment option compared to other schemes.
One of the major reasons why people invest in FDs is the steady income it provides. This can be used to meet the regular expenses of the investor. Bank Fixed Deposits come with an option of choosing the payout period of the interest (monthly, quarterly or half-yearly). Whereas, the Post Office FDs provide only annual payments. This might be a deciding factor for the investor’s choice.
There are many Post Office Saving Schemes that provide the benefit of deduction from taxable income. However, all the FD schemes in the post office are not exempted from taxation. Only the investment in 5-year Post Office FDs is eligible for a tax rebate. On the other hand, Banks also come with 5-year Tax-saving FDs.
Also, the customer service in Banks is way better than Post Offices. Based on all the above-discussed factors, individuals might choose to invest in Bank or Post Office FDs.