What is a post office FD?

A post office FD is officially called the National Savings Time Deposit (TD). It is a Government of India small savings scheme, run by the Department of Posts, that works much like a bank fixed deposit: you deposit a lump sum for a fixed period, and the interest rate is locked in for that entire period.

You can choose one of four periods — 1, 2, 3 or 5 years. The minimum deposit is ₹1,000, in multiples of ₹100, and there is no upper limit. You can open as many TD accounts as you like.

The Ministry of Finance reviews the rates every quarter. A change affects only new deposits. Once your account is open, your rate does not move, even if the government cuts rates the next quarter.

How post office FD interest is calculated

This is where post office deposits differ from most bank FDs, and where many online calculators get the figure wrong.

India Post’s scheme rules say two things:

  1. Interest is compounded quarterly and paid annually.
  2. No additional interest is paid on interest that has fallen due but not been withdrawn.

So within each year, interest compounds four times. At the end of the year, that year’s interest is paid out, and the calculation starts again on your original deposit. The interest does not keep compounding year after year.

Formula

Interest per year = P × [ (1 + r/4)4 − 1 ]

Total interest = Interest per year × number of years

P = deposit, r = annual interest rate as a decimal

Worked example: ₹1 lakh for 5 years

At a 5-year rate of 7.5%:

  • Quarterly rate: 7.5% ÷ 4 = 1.875%
  • Growth over one year: (1.01875)4 = 1.07714, an effective yield of 7.71%
  • Interest per year: ₹1,00,000 × 0.07714 = ₹7,714
  • Total over five years: ₹7,714 × 5 = ₹38,568
  • Total received: ₹1,38,568

Why other calculators show ₹1,44,995

A generic FD calculator treats the deposit as compounding quarterly for the full five years: ₹1,00,000 × (1.01875)20 = ₹1,44,995. That is how a bank’s cumulative FD works, but it is not how a post office TD works. Under the scheme rules, interest you leave uncollected does not earn more interest, so that calculation overstates the return by about ₹6,400 on a ₹1 lakh deposit.

If you want your yearly interest to keep earning, you have to move it yourself. You can give the post office a written mandate to credit it to your Post Office Savings Account or bank account each year, then invest it wherever you choose. Money in a Post Office Savings Account currently earns 4%.

Does a post office FD pay monthly interest?

No. A Time Deposit pays interest once a year, whichever tenure you choose. There is no monthly or quarterly payout option.

If you need a regular monthly income, the post office’s product for that is the Monthly Income Scheme (MIS), which pays interest every month over five years. If you are 60 or older, the Senior Citizens’ Savings Scheme (SCSS) pays every quarter, at a higher rate. Current rates for both are in the comparison table above.

Is there a higher post office FD rate for senior citizens?

No. Unlike most banks, the post office pays the same TD rate to every depositor, regardless of age. A 70-year-old and a 25-year-old get exactly the same rate on a 5-year TD.

Senior citizens looking for a higher post office rate usually compare the TD with the Senior Citizens’ Savings Scheme, which is open only to people aged 60 and above (and, subject to conditions, to some retirees from 55). It carries its own deposit limit and rules.

Choosing between 1, 2, 3 and 5 years

Longer deposits pay a higher rate, but the difference is not only about the rate:

  • Only the 5-year TD qualifies for the Section 80C deduction. Deposits in 1, 2 and 3-year TDs do not.
  • The 5-year TD is the hardest to exit. It cannot be closed at all for the first four years, and closing it after that earns only the savings account rate.
  • Shorter deposits can be closed after six months, at a reduced rate.
  • A shorter tenure lets you re-deposit sooner if rates rise. A longer one keeps today’s rate if they fall. Nobody can reliably predict which way rates will move.

If you might need the money before five years, the tax saving on a 5-year TD may not be worth giving up access to it.

Closing a post office FD early

You can withdraw a Time Deposit before maturity, but it costs you interest. The early closure table above sets out every case, at today’s rates. Three points matter most:

  • Nothing can be withdrawn in the first six months, on any tenure.
  • A 5-year TD is locked for four years. After that, closing it early earns the Post Office Savings Account rate instead of the TD rate.
  • Interest already paid to you is taken back. The post office recalculates your interest at the lower rate and deducts what it has already paid from your payout.

An example of how the rules combine: suppose you close a 3-year TD after 1 year and 6 months. The one completed year earns the 1-year TD rate minus 2%. The extra six months earn the Post Office Savings Account rate. The full-rate interest you received at the end of the first year is then deducted from the amount you get back.

Your post office will calculate the exact amount when you apply to close the account.

Post office FD vs bank FD

Post office TD Bank FD
Tenure 1, 2, 3 or 5 years only Usually anything from 7 days to 10 years
Rate Same at every post office, set by the government Varies by bank
Senior citizen rate None Most banks pay extra
Interest payout Yearly only Monthly, quarterly, yearly or at maturity
Who backs it A Government of India scheme The bank, with DICGC insurance up to ₹5 lakh per depositor per bank
Tax-saving option 5-year TD 5-year tax-saver FD

Bank FD rates change often and differ widely between banks, so compare the current rate from your own bank against the post office rate before deciding.

Tax on post office FD interest

  • Interest is taxable and is added to your income at your slab rate, every year.
  • The deposit in a 5-year TD is eligible for the Section 80C deduction, within the overall ₹1.5 lakh 80C limit. The deduction is available only under the old tax regime.
  • The interest itself is not tax-free, even on a 5-year TD.
  • Tax may be deducted at source once interest crosses the applicable threshold. If your total income is below the taxable limit, you can submit Form 15G, or Form 15H if you are a senior citizen, to avoid TDS.

Who can open a post office FD

  • A resident Indian adult, in their own name
  • Up to three adults jointly. A Joint A account is operated by all holders together; a Joint B account by any one of them.
  • A guardian, on behalf of a minor or a person of unsound mind
  • A minor aged 10 or above, in their own name

NRIs, trusts and firms cannot open a Time Deposit. A minor’s account must be converted to an adult account with a fresh form and KYC when they turn 18.

How to open a post office FD

  1. Visit a post office and ask for the account opening form and KYC form.
  2. Attach your documents: PAN card and Aadhaar. If you do not have Aadhaar, a passport, driving licence or voter ID is accepted.
  3. Pay by cheque. India Post currently opens these accounts by cheque at post office branches.
  4. Add a nominee. Nomination is mandatory, and you can name up to four people.

Deposits above ₹10 lakh need proof of the source of funds. If you already have a Post Office Savings Account with internet or mobile banking enabled, you can open a TD online through India Post e-banking.

What happens at maturity

The deposit is repaid when the 1, 2, 3 or 5-year term ends. Amounts of ₹20,000 or more are paid by account payee cheque or credited to your Post Office Savings Account.

You can also extend the deposit for the same term as the original. The request must be made within 6 months of maturity for a 1-year TD, within 12 months for a 2-year TD, or within 18 months for a 3 or 5-year TD. The rate that applies to the extended period is the one in force on the maturity date. A TD can be extended a maximum of twice.

For a longer-term, tax-free option at the post office, see the PPF interest rate and calculator. For our other tools, browse all finance calculators.