Can I invest in Post Office Time Deposit and how are these schemes different from bank FDs?

Can I invest in Post Office Time Deposit and how are these schemes different from bank FDs? I want to know which will give me a bigger corpus. I have Rs 3 lakh in hand and can invest it for 15 years.

Advice by Anooj Mehta, Vice President, Partner Success at 1 Finance

Both Post Office Time Deposits and Bank Fixed Deposits are secure debt instruments. Bank FD is a better choice for building a larger corpus over 15 years with 3 lakhs as investment amount, due to the power of compounding.

The main difference is the payout structure. Post Office deposits currently pay interest annually, meaning you earn simple interest unless you manually reinvest those payouts elsewhere. In contrast, Bank FDs offer a cumulative option where interest is automatically reinvested, allowing you to earn "interest on interest." Mathematically, this creates a significant gap.

Investing Rs 3 lakh for 15 years in a Post Office deposit at approx ~ 7.5% would yield a total value of roughly Rs 6.4 lakh (principal plus total interest payouts). However, a cumulative FD from a large bank at approx ~ 7% would grow to approximately Rs 8.5 lakh, and a small finance bank offering approx ~ 8.25% could yield upwards of Rs 10 lakh due to quarterly compounding. However, the tax treatment on both these products is the same - all gains and returns will be taxed as per your tax bracket.

Although Post Office deposits carry a sovereign guarantee, Bank FDs are insured up to Rs 5 lakh by DICGC and offer the convenience of automatic growth, making them more efficient for long-term wealth creation compared to the Post Office Fixed Deposits.

Post office savings schemes vs Bank FDs

Post office small savings schemes continue to offer attractive and predictable returns. The Post Office Time Deposit (POTD) pays 7.5% per annum on a five-year deposit, while shorter tenures earn 6.9% for one year, 7% for two years and 7.1% for three years. The National Savings Certificate (NSC) offers a fixed return of 7.7% a year with a five-year lock-in, while the Senior Citizen Savings Scheme (SCSS) stands out with an interest rate of 8.2%, making it one of the most rewarding options for retirees.

From a risk perspective, small savings schemes rank among the safest investment avenues, as both principal and interest are fully backed by the Government of India. Bank fixed deposits are also considered low risk, but their protection is limited. Deposits are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) only up to Rs 5 lakh per depositor per bank, including interest.

Bank FDs: Current rate

Small finance banks (SFBs) continue to offer the most attractive fixed deposit (FD) rates in the market, particularly for longer tenures, as they compete aggressively to mobilise deposits. Data from Paisabazaar.com shows that several SFBs are offering interest rates close to, or even touching, the 8% mark for select maturities.

Jana Small Finance Bank and Suryoday Small Finance Bank are currently offering up to 8% per annum on five-year fixed deposits, making them the highest-paying options among banks. Slice Small Finance Bank offers up to 7.75% for a narrow tenure band of around 18 months, while Equitas, Ujjivan and Utkarsh Small Finance Banks largely provide rates in the 7–7.5% range for one- to three-year deposits. These elevated rates reflect the smaller banks’ need to attract and retain deposits in a competitive environment. However, depositors are advised to keep their exposure within the ₹5 lakh insurance cover provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Private sector banks, in contrast, are offering relatively lower rates but provide greater tenure flexibility and stronger balance sheets. Most large private banks are offering between 6.25% and 7% for one- to five-year FDs. ICICI Bank and Axis Bank, for instance, are offering up to around 6.6% and 6.45%, respectively, for longer tenures, while IDFC First Bank, RBL Bank and YES Bank are closer to the 7% mark for select maturities.

Public sector banks continue to adopt a conservative pricing approach. Most state-owned banks are offering FD rates in the 6–6.5% range. State Bank of India’s special 444-day ‘Amrit Vrishti’ deposit, offering up to 6.45%, remains one of the more attractive options for risk-averse savers prioritising safety over higher returns.

Top Bank FD Interest Rates in India for 2025 (Tenure: 7 days to 10 years)

Bank                         | General Public (p.a.) | Senior Citizens (p.a.) -----------------------------|-----------------------|------------------------ Axis Bank                    | 3.00% – 6.60%         | 3.50% – 7.35% Bandhan Bank                 | 2.95% – 7.20%         | 3.70% – 7.70% Bank of Baroda               | 3.50% – 6.60%         | 4.00% – 7.10% Central Bank of India        | 3.50% – 6.50%         | 4.00% – 7.00% HDFC Bank                    | 2.75% – 6.60%         | 3.25% – 7.10% ICICI Bank                   | 2.75% – 6.60%         | 3.25% – 7.10% IDBI Bank                    | 3.00% – 6.55%         | 3.50% – 7.05% IDFC FIRST Bank              | 3.00% – 7.00%         | 3.50% – 7.50% IndusInd Bank                | 3.25% – 7.00%         | 3.75% – 7.50% Karnataka Bank               | 3.50% – 6.65%         | 3.75% – 7.05% Kotak Mahindra Bank          | 2.75% – 6.70%         | 3.25% – 7.20% Bank of Maharashtra          | 2.75% – 6.65%         | 3.25% – 7.15% Punjab National Bank         | 3.00% – 6.60%         | 3.50% – 7.10% RBL Bank                     | 3.50% – 7.20%         | 4.00% – 7.70% South Indian Bank            | 2.90% – 6.60%         | 3.40% – 7.25% State Bank of India          | 3.05% – 6.45%         | 3.55% – 6.95% Tamilnad Mercantile Bank     | 4.00% – 7.00%         | 4.00% – 7.40% Union Bank of India          | 3.40% – 6.60%         | 3.90% – 7.10% YES Bank                     | 3.25% – 7.00%         | 3.75% – 7.75%

Source: BankBazaar