When it comes to investments, several people in India prefer using fixed deposits or FDs as it offers guaranteed returns. Unlike stocks and mutual funds, these give safe returns as they are unaffected by market volatility. However, falling FD rates have become a point of concern for investors now.
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Lately, several banks have reduced their FD rates. The cut has been so much in recent months that in many cases they appear to be at par with the savings account interest rates offered by many banks.
Given the situation, conventional investors who generally prefer parking higher amounts in FDs may have second thoughts.
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For such investors, experts suggest going for a post office fixed deposit instead of a bank FD.
"The rate of interest on post office FDs are currently higher than many bank FDs," experts say.
The fixed deposit account in a post office offers an interest rate in the range of 5.5-6.7 percent for a period of 1-5 years. For 1 year, 2 years and 3 years period, the post office offers an interest rate of 5.5 percent. In a 5-year period, investors get 6.7 percent.
On the other hand, major banks currently offer FDs in the range of 5.1 percent-5.4 percent for similar tenure. SBI offers an interest rate of 5.10 percent on FDs of up to Rs 2 crore for a tenor of 1 year.
Interest rates on post office saving schemes move in line with the government's interest rates on small savings schemes, which are revised on a quarterly basis. Interest rate on the time deposit account is payable annually but calculated quarterly.
Another major benefit of the post office fixed deposit scheme is safety.
"Irrespective of the amount of deposit, the safety in post office FD is the highest as they are backed by a government guarantee," say experts.
Additionally, investments made under the 5-year fixed deposit account qualify for income tax benefits under Section 80C of the Income Tax Act, 1961, according to India Post.
The minimum amount required to open a post office FD account is Rs 200 and in multiple thereof. However, there is no maximum limit.
Disclaimer: CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
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