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Five Year Post Office Time Deposit

Five Year Post Office Time Deposit Scheme

Last Update Date : August 14, 2018

Five Year Post Office Time Deposit

Just as there are bank fixed deposits, post offices across the country offer the same. A post office time deposit scheme offers the same tax deductions as five year tax saving fixed deposits. Read this guide to learn more about time deposits offered at post offices.

What is a Five-year Post Office Time Deposit Scheme?

A five-year Post Office Term Deposit (POTD) is a savings and investment scheme similar to the fixed deposits (FD) offered through banks, you can deposit money for a fixed period and earn a guaranteed return through the tenure with POTD.  When the deposit gets matured i.e. at the end of the deposit’s tenure, an account holder / investor gets deposited amount and interest earned on it.

Since it is a government investment scheme, the amounts are risk-free and returns are guaranteed.

Who can Open Post Office Timed Deposit?

Any Resident Indian can open this account either individually or jointly.  There is no entry barrier with respect to age. A minor above age 10 years can also invest with their own name as an investor. An adult guardian can also open the account on behalf of the minor.

You can open the account at any head post office or general post office. There is not any online facility or online access to post office accounts so far.

Note: Group Accounts, Welfare Funds, Institutional Accounts and Misc. Accounts are not permissible, as per The Post Office Time Deposit rules, 1981.

How to Open POTD?

Five year fixed deposits can be opened with any branch of Indian Post Office.   Recently, the central government had authorized all public-sector banks and private banks like ICICI, Axis and HDFC banks to allow individuals to open a POTD account.  POTD are like any other fixed deposits. The only difference is they comes in with a lock-in period of five years.

The minimum amount that can be invested is INR 200, and in multiples thereof. There is no upper limit for investment in this scheme.

Documents Required

The following documents are required as KYC details to invest in a five year post office time deposit scheme

  • A deposit opening form provided by the post office
  • Address and identity proof

Application Procedure

Along with application, an investor is required to carry original identity proof for verification at the time of account opening.  An investor, to get the formalities done, needs to opt for a nominee and get a witness signature done.  A pay-in slip is required along with the application. This pay-in slip should reflect the initial deposit opening sum to be credited into your POTD account. The entire payments can be made by either cash or cheque.

Interest Rates

Rate of interest on five-year post office deposit is 7.9%. Interest is credited annually but calculated quarterly on compounding basis in POTD scheme.

Period Rate
1-year 6.6%
2-year 6.7%
3-year 6.9%
5-year 7.4%

Benefits of Investing in POTD

  1. Investments in five-year post office time deposits (POTD) are totally risk-free with guaranteed returns.
  2. The five years post office time deposits (POTD) offer dual advantages of return on investment and tax deduction.
  3. There is neither any bar on age nor on investment amount, (starts with INR 200). So, it is affordable and preferable for all class of people.
  4. Though POTD comes in with a lock-in period, it is a liquid investment. A depositor can either borrow against the deposit or withdraw the deposit prematurely.
  5. The investments in POTD is also transferrable to any other post office across India.
  6. When any TD account is matured, the same TD account will be automatically renewed for the period for which the account was initially opened.

Tax Benefits

  1. The investment under 5 Years TD scheme, qualifies for the benefit of Section 80C of the Income Tax Act, 1961 from 1.4.2007.
  2. Interest earned under this scheme is fully taxable, however, no TDS certificate is issued by Post Offices.
  3. Interest is also not exempt from taxes when withdrawn before maturity.

Maturity and Withdrawal

The deposit amount can be withdrawn along with interest credited on it, at the end of its maturity period of five years.
Maturity incomes not withdrawn are eligible to savings account interest rate for a maximum period of two years.  Premature withdrawal, for Accounts opened on or after 1st December 2011, is allowed at the end of six months from the date of deposit, subject to following conditions:

Premature Withdrawal Conditions

In case of 1-3 years or 5-Years deposits, which are withdrawn prematurely (after 6 months but before expiry of one year from the date of deposit)  Simple interest shall be payable at the rate applicable to Post Office Saving Account

In case of deposits for two, three or five years withdrawn prematurely (after the expiry of one year from the date of deposit)  Interest is payable for the completed years and months at 1% lower rate than specified for the completed period

How to Operate the Account?

• You need a pay-in slip with the initial deposit-opening sum to be credited into your account.
• Payment can be made by cash or cheque.

Points to Remember

  • There is facility to extend the tenure if needed, after maturity.
  • Maturity amount not withdrawn, will be permitted savings account interest rate for only 2 years.
  • POTD has a passbook, with the rules applicable that are applicable to your account are stated in it.
  • This scheme is beneficial for people who wants to invest lump-sum amount.

How H&R Block Can Help You?

To know more about POTD and other tax savings schemes for better investment and tax planning, enlist the aid of the experts at H&R Block India.

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