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With Fixed Deposits Losing Appeal, Investors Rush to the Post Office

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A five-year deposit with a post office gives 8.5% returns against only 7-7.75% from a bank FD
The recent cuts in bank FD rates are driving investors to post office instruments. After the rate cuts in early October, a five-year fixed deposit with the country's leading banks fetches 77.75%.
In comparison, a time deposit with the post office for the same duration fetches 8.5%. With 10-year National Savings Certificates (NSC) you get 8.8%.
Financial advisors said expectations of lower returns from post office deposits after the Union Budget in 2016 are prompting investors to lock in a portion of their money in this instrument.
Soon after Reserve Bank of India's 50 basis points repo rate cut in September, the government said it would review the small savings rates in order to facilitate transmission of monetary policy easing.
Banks have complained that higher in terest rates on small savings schemes have made their deposits rates uncompetitive. “I am advising investors to shift from bank deposits to post office time deposits, as and when their deposits come up for maturity,“ said Jitendra Solanki, a New Delhi-based financial planner.
For the last 3-4 years, investors preferred bank deposits as they paid higher rates, as compared to post offices.
But, this is changing now. Financial advisors said the gap in interest rates between banks and post office is wider for senior citizens.
A five-year senior citizen scheme pays 9.3% against SBI's 7.25%. However, there is a cap of Rs.15 lakh on this scheme, though there is no investment cap on term deposits and NSCs.
“Retired investors who do not want the risk of any other asset class other than fixed deposits, are finding post office schemes better, as they can easily earn higher interest rates, with the same amount of safety,“ says Nikhil Naik, managing director of Mumbai-based Naik Wealth Advisors.
Wealth managers said this sharp difference in interest rates between the banks and post offices could be a temporary phenomenon and investors should make the most of it.
Post office schemes have become far more convenient now.
Unlike earlier times, when a term deposit was locked for the first six months, now investors in a term deposit can withdraw anytime and if the deposit is closed before one year, they will earn only a savings bank interest.
Also, in case of monthly income schemes a post office offers ECS (electronic clearing service) facility where investors can get interest credited to their regular bank account.
The Economic Times, New Delhi, 3rd Nov. 2015

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