A Rs 5 lakh investment in a Post Office Time Deposit can produce different returns depending on whether the deposit is held for 1, 2, 3 or 5 years. The scheme, also called a National Savings Time Deposit, is supported by the central government and is intended for investors seeking a low-risk option.
The government reviews interest rates for post office deposits and other small savings schemes every quarter. At the stated rates, the approximate maturity value for a Rs 5 lakh deposit ranges from Rs 5,35,403 after 1 year to Rs 7,24,974 after 5 years.
Maturity values by tenure
The returns provided for each available term are:
| Tenure | Interest rate | Interest earned | Approximate maturity amount |
|---|---|---|---|
| 1 year | 6.9% | Rs 35,403 | Rs 5,35,403 |
| 2 years | 7.0% | Rs 74,441 | Rs 5,74,441 |
| 3 years | 7.1% | Rs 1,17,538 | Rs 6,17,538 |
| 5 years | 7.5% | Rs 2,24,974 | Rs 7,24,974 |
At 6.9% per annum, the 1-year deposit is expected to earn around Rs 35,403, taking the amount payable at maturity to approximately Rs 5,35,403. The 2-year option carries a 7.0% rate and is shown with interest of around Rs 74,441, producing an approximate maturity value of Rs 5,74,441.
An infographic explaining the key facts in Post office TD: What Rs 5 lakh may become over 1, 2, 3 and 5 years.
The 3-year deposit has an interest rate of 7.1%. On a Rs 5 lakh investment, the interest is estimated at around Rs 1,17,538, with approximately Rs 6,17,538 payable at maturity. The 5-year deposit offers 7.5% and is shown with interest of around Rs 2,24,974, taking the maturity amount to approximately Rs 7,24,974.
How the account works
A Post Office Time Deposit can be opened with Rs 1,000, with further deposits made in multiples of Rs 100. The source material states that there is no maximum investment limit.
Interest is compounded quarterly and paid annually. If a customer provides a written standing instruction or ECS mandate, the annual interest can be credited to either the post office savings account or the customer’s bank account.
Tax treatment
Tax eligibility depends on the term selected. Among the listed Post Office Time Deposits, only an investment in the 5-year account qualifies for tax benefits under Section 80C of the Income Tax Act and the old tax regime.
The 1-year, 2-year and 3-year options do not receive that stated tax benefit. Therefore, the deposit term affects both the projected maturity amount and the tax treatment described for the investment.
Rules for early closure
A time deposit cannot be withdrawn during the first 6 months after it is opened. The interest payable after an early closure depends on the account’s tenure and how long the money remained deposited.
For a 1-year, 2-year or 3-year account closed after 6 months but before the relevant period is completed, the post office savings account interest rate applies to the completed months. If a 2-year or 3-year deposit is closed after 1 year, interest for completed years is calculated at a rate 2% lower than the applicable rate for a 1-year or 2-year deposit, as applicable.
For a period shorter than 1 year in those cases, the post office savings account interest rate applies. A 5-year account cannot be closed before 4 years have been completed. If it is closed after 4 years, the post office savings account interest rate is used.
Any interest already paid on the deposit is recovered from the repayment amount and the interest payable when the account is closed early.
