Post Office Schemes Or Bank FDs: Which One Should Seniors Choose For Long-Term Investment

Since the Reserve Bank of India (RBI) announced a cut in the repo rate on June 9, 2025, several banks have begun to reduce their deposit rates. Recently, many banks reduced the deposit rate on fixed deposits (FDs) across tenures.

However, the government kept the rates on post office small savings schemes for the July-September 2025 quarter unchanged though many experts had anticipated a rate cut in these too. Incidentally, the deposit rate on small savings schemes have remained unchanged since January 2024.

In this context, senior citizens, who typically prefer to invest in bank FDs with banks, may evaluate whether locking in a long-term FD for five years is a better option than post office schemes.

Let us understand this for 5-year FDs. Banks set different deposit rates for various tenures. Here is a list of five public and private banks and the deposit rate being offered to senior citizens for a 5-year FD.

Deposit Rate on FDs:

State Bank of India (SBI) – 7.05 per cent

Punjab National Bank (PNB) - 7.00 per cent

Canara Bank – 7.00 per cent

Bank of Baroda – 7.00 per cent

HDFC Bank – 6.65 per cent

ICICI Bank – 7.10 per cent

Axis Bank – 7.25 per cent

IDFC First Bank – 7.25 per cent

Compared to this, the post office 5-year deposit offers a deposit rate of 7.50 per cent, compounded quarterly.

For seniors, another option is the Senior Citizens Savings Scheme (SCSS), which offers even higher rates, at 8.20 per cent. SCSS is also a five-year deposit scheme initially which can be extended in blocks of three years for an unlimited period. National Savings Certificate (NSC) is another scheme offered by the post office, which comes with a 5-year deposit period and offers a deposit rate of 7.70 per cent.  

Sovereign-Backed Investment:

However, the comparison should not end with the deposit rate. One of the most significant benefits of post office schemes is that they are backed by a sovereign guarantee. The investment in post office schemes is secured in full, whereas bank deposits are secured only up to Rs 5 lakh if a bank fails or goes bankrupt.

Taxation:

Interest on bank FDs is taxable as per one’s income tax slab. However, if it is a tax-saver FD, the deposit is tax-free under Section 80C of the Income-tax Act, 1961. The same tax benefits are available on the post office 5-year deposit scheme, NSC, and SCSS.

The interest is paid on maturity in tax-saver FDs. But in SCSS, the interest is paid on a quarterly basis. It is tax-free up to Rs 1 lakh per year, including interest income from other sources as per the revised rules in Budget 2025.

The most significant advantage of the current post office schemes is their interest rates, which have not been reduced for this quarter. Also, these schemes offer sovereign backing without any limit, unlike bank deposits, which are insured only up to Rs 5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme. While the tax benefits are comparable for both types of deposits, it is important to consider the other advantages provided by post office schemes before deciding on the suitable investment option.