Post Office Schemes: With the RBI signalling a lower interest rate regime, the banks are in a rush in lowering their fixed deposit (FD) interest rates. Several banks including State Bank of India (SBI), Kotak Mahindra Bank HDFC Bank, Axis Bank and Punjab National Bank (PNB) have recently reduced interest rates on their FD’s across different tenures. Conservative investors looking for a fixed-income investment will soon look for other investment options. For them, post office small savings schemes offer a higher return compared to bank FD and are safer too.

Over the medium-term of about 5 years, while most front line banks are offering a return of around 6.5 per cent, post office schemes with lump-sum deposits are providing interest rate of 7.5 and upwards. In a declining interest rate scenario, locking funds for a longer duration helps. Those conservative investors who wish to invest a lump sum for a period of five years or more, may consider three post office small savings schemes – National Savings Certificate (NSC), Kisan Vikas Patra (KVP ) and Post Office Time Deposit Account (POTD). Among them, while NSC and KVP are cumulative in nature i.e. interest gets accumulated and is paid on maturity, in the case of POTD, the interest is paid annually.

Here we look at National Savings Certificate (NSC), Kisan Vikas Patra (KVP ) and Post Office Time Deposit Account (POTD) and see some of the important features:

National Savings Certificate (NSC)

NSC is a 5-year investment in which the interest gets accumulated and paid along with principal on maturity. The minimum investment is Rs 100 and then the investment can be in multiples of Rs 100 in NSC, with no upper limit. For the NSC certificates purchased between July-September, 2019, the interest rate is 7.9 per cent compounded annually but payable at maturity. In other words, Rs 100 invested in NSC will have a maturity value of Rs 146.25 after 5 years. NSC certificate can be purchased only in single name and no joint holding is allowed, however, it can be bought on behalf of a minor or by a minor.

Investment in NSC qualifies for income tax benefit under section 80C of the Income Tax Act. Further, the interest that gets accrued each year is deemed to be reinvested and also qualifies for Section 80C tax benefit. Importantly, the interest earned is fully taxable in the hands of the investor in the year of receipt.

NSC certificates are transferable from one person to another. The rules states that in case of NSC VIII , transfer of certificates from one person to another can be done only once from date of issue to date of maturity. Also, as per the rules, at the time of transfer of NSC Certificates from one person to another, old certificates will continue to exist. During transfer, only the name of old holder gets rounded and name of new holder shall be written on the old certificate under dated signatures of the authorized postmaster along with his designation stamp and date stamp of Post office.

Kisan Vikas Patra (KVP )

In the case of KVP, the interest also gets accumulated and paid along with principal on maturity. However, the structure of KVP is such that it doubles the invested amount on maturity. The minimum investment is Rs 1000 and then the investment can be in multiples of Rs 1000 in KVP, with no upper limit. For the KVP certificates purchased between July-September, 2019, the interest rate is 7.6 per cent compounded annually but payable at maturity. In other words, Rs 1000 invested in KVP will have a maturity value of Rs 2000 in 113 months i.e. 9 years and 5 months.

KVP certificate can be purchased by an adult for himself or on behalf of a minor or by two adults and can also be transferred from one person to another and from one post office to another. The post office rules allow early encashment of KVP anytime after 2 and half years of holding it.

Must Watch: How To Withdraw PF Online

Post Office Time Deposit Account (TD)

Post Office Time Deposit Account (TD) are available for 1, 2, 3 and 5 years tenure. The minimum investment is Rs 200 and then the investment can be in multiples of Rs 200 in Time Deposit of any tenure, with no upper limit. In any of the Time Deposit, the interest will be payable annually but compounded on quarterly basis. For the Time Deposit made between July-September, 2019, the interest rate is as follows:

1 year Time Deposit: 6.9 per cent
2 year Time Deposit: 6.9 per cent
3 year Time Deposit: 6.9 per cent
5 year Time Deposit: 7.7 per cent

Interest earned in Time Deposits is fully taxable and gets added to one’s income for the financial year. The only tax benefit available is on investment made in the 5-year Time Deposit.

Any number of deposits can be made and the deposits can also be transferred from one post office to another. Time Deposit accounts can be opened in the name of minor and a minor of 10 years and above age can open and operate the account. They can also be held as joint accounts and a single account can be converted to joint account as well.

Important to note that in CBS ( core banking solutions) Post offices , when any Time Deposit account is matured, the same Time Deposit account will be automatically renewed for the period for which the account was initially opened. For example 5 years Time Deposit account will be automatically renewed for 5 years and the interest rate applicable on the day of maturity will be applied.