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Post office fixed deposits: Why should I invest my money in these instruments?

The Post Office Fixed Deposit (POFD) (alternatively known as the post office ‘time’ deposit) is a reliable and secure alternative to fixed deposit schemes offered by banks. An investor can earn an assured return on the amount deposited for a given period.

The most suited POFD users are those who are conservative about their savings and prefer the security of their capital. It is important to note that the interest rates for post office fixed deposits are typically higher than that of a bank’s fixed deposit.

A POFD can be availed for any period between 1-5 years. The rate of interest for POFD is revised at the beginning of every quarter of the final year. The interest rate is determined according to the yield on government securities. The current rates are as follows:

PeriodRate
1 year 6.9%
2 years 6.9%
3 years 6.9%
5 years 7.70%
One of the most attractive aspects of a POFD is the tax benefits you can avail. They are as follows: 

  • Section 80C deduction is available. The annual deduction limit under 80C is ₹1.5 lacs. However, this is applicable only to the 5-year time deposits. 
  • TDS is applicable on the interest. However, there is a ₹40,000 threshold on the interest earned before TDS is charged. This is beneficial to depositors with lower income that may not be in the taxable bracket. 
  • If you are a senior citizen, you can take advantage of even more POFD tax exemptions. For senior citizens, tax exemptions can be availed on any interest earned up to ₹50,000, as per Section 80TTB of the Income Tax Act
Some more benefits of the POFD are as follows:

  • The minimum amount needed to open an account is ₹200. There is no upper limit.
  • Further, your account can easily be changed from a single account into a joint one and vice versa. Additionally, you can open any number of POFD accounts. 
  • A minor’s account can be handled by their legal guardian. 
  • In certain cases, you can also choose to move your fixed deposit from one post office to another. 
  • Nomination: When opening a POFD account, one can nominate their beneficiary. The person in question can then nominate yet another person. 
  • Withdrawal: It is possible to withdraw an amount from your POFD account at any point before it reaches maturity. 
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