Fixed deposits (FDs) are considered a secure avenue for parking surplus funds. The assurance of capital preservation and predetermined returns makes FDs an attractive option, especially for conservative investors looking to mitigate market volatility.
Several lenders, including State Bank of India (SBI) and the Indian post office, have recently raised their FD rates.
While SBI hiked interest rates on certain FDs by up to 50 basis points or 0.50%, the three-year post office term deposit rate was increased by 10 bps, or 0.10%.
A look at interest rates in detail
Last month, SBI increased rates across various tenures, excluding FDs maturing within one year to less than two years, two years to less than three years, and 5-10 years.
The revised rates entail a 50-basis points (bps) rise for deposits maturing in seven days to 45 days now fetching 3.50% interest rate. Similarly, for 46 days to 179 days, the bank has raised the interest rate by 25 bps to 4.75%.
Fixed deposits ranging from 180-210 days now yield an increased interest rate of 5.75% after a 50-bps hike.
Meanwhile, the 211 days to less than one year tenure now provide a 6% interest rate following a 25 bps increase.
For longer fixed deposits, SBI's adjustments boosted rates by 25 bps, reflecting an interest rate of 6.75% for FDs maturing in three years to less than five years.
| Tenors | Rates for public | Rates for senior citizens |
| 7 days to 45 days | 3.5% | 4% |
| 46 days to 179 days | 4.75% | 5.25% |
| 180 days to 210 days | 5.75% | 6.25% |
| 211 days to less than 1 year | 6% | 6.5% |
| 1 Year to less than 2 years | 6.8% | 7.3% |
| 2 years to less than 3 years | 7% | 7.5% |
| 3 years to less than 5 years | 6.75% | 7.25% |
| 5 years and up to 10 years | 6.5% | 7.50% |
(Source: SBI)
On the other hand, post office fixed deposits of three years have an interest rate of 7.1% after revision. Other tenures like one-year, two-year and five-year deposits give interest rate of 6.9%, 7% and 7.5%, respectively.
| Post Office Time Deposit (1 year) | 6.9% |
| Post Office Time Deposit (2 years) | 7% |
| Post Office Time Deposit (3 years) | 7.1% |
| Post Office Time Deposit (5 years) | 7.5% |
So, which is better?
For illustration, let's consider any investment for three years in an SBI account and the same amount for the same tenure in post office FD.
In case of SBI, the interest rate on the investment will be 6.75%, while in case of post office it will be 7.1%. Similarly, a five-year FD in case of SBI entails a rate of 6.5% only.
On the other hand, a post office deposit in this scenario gives a rate of 7.5%.
These examples show that post office gives more returns when compared to SBI.
Beyond the numbers, there are other differences too.
SBI's fixed deposits with tenures ranging from seven days to a decade are accessible through online platforms via net banking. Conversely, the post office FDs, available for one, two, three, or five years, require a physical visit to a post office branch for account initiation.
The post office FDs are government-backed and their interest rates are revised every quarter.
However, in the case of SBI fixed deposits, there is no such rule. Fixed deposit rates of banks get affected by repo rates that are fixed by the Reserve Bank of India (RBI).
Experts suggest making an informed choice after considering all the options.
