After the Reserve Bank of India (RBI) hiked the repo rates at periodic intervals last year, many people started to view fixed deposits (FDs) as a valid savings option. Banks have been increasing the interest rates on FDs since May last year. Post offices also offer savings options that are similar to bank FDs and at competitive interest rates. In such a situation, it can be difficult to decide if term deposits are better in banks or post offices. Take a look at how banks and post office FDs differ and what you should consider before investing you money:
Interest rates:
Post offices offer interest between 6.8 and 7.5 per cent on different term deposits. On the other hand, bank FDs have no uniform interest rate. Different banks offer different interest rates on term deposit schemes. These returns can be higher than what post offices offer.
Volatility:
Post office schemes are linked to the central government and are less volatile. These are a safer investment option than FDs with regards to the effect of market conditions. These schemes are insured by the government.
In the case of bank FDs, the main insurer is the bank. The deposits are insured by the RBI up to Rs 5 lakh only. Bank fixed deposits are connected to the Reserve Bank of India’s repo rate making them more likely to be affected by fluctuations in the global market.
Tax benefits:
Both banks and post office fixed deposits offer tax benefits of up to Rs 1.5 lakh.
Duration:
Bank term deposits can last from 7 days to 10 years. Post office FDs can be up to 5 years only.
How to choose between bank and post office FDs:
Investors need to take into account a variety of factors before they put their money in a term deposit.
The rate of returns is not the only factor under consideration. Some banks offer higher interest but are more volatile, meaning there could be a chance that investors lose their money.
Post office schemes are a safer investment option in terms of returns. They also offer competitive interest rates.
What investors need to ensure is that they do not invest all their savings in one scheme. A diversified investment portfolio is the best way to beat inflation and keep your money safe.
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