Post Office FD Interest Rate vs Bank FD: ₹5 Lakh for 1, 3 and 5 Years

Hetal-ben's five-year FD at the SBI branch on Kalawad Road in Rajkot matured last week. ₹5 lakh, renewed twice without a second thought. This time the clerk quoted 6.05% for another five years. Across the road, the post office board said 7.5% for the same five years. Same money, same safety in her mind, and a gap of nearly one and a half percent. She walked out with the cheque and asked her nephew what the catch was.

There is a catch. This post puts the post office time deposit (the official name for a post office FD) next to SBI and HDFC Bank on ₹5 lakh for 1, 3 and 5 years: the current rates, how the interest is paid, the tax-saving version, the rules for breaking it early and what actually protects your money in each place.

The rates right now: post office vs SBI vs HDFC Bank

The post office time deposit comes in four fixed tenures: 1, 2, 3 and 5 years. The government sets its rate every quarter. For October to December 2026, the Department of Posts order of 30 September 2026 says the Finance Ministry has kept every small savings rate unchanged from the July to September quarter. The rates themselves were last changed in January 2024, when the 3-year deposit went from 7% to 7.1%, as the gazette text of the National Savings Time Deposit Scheme records. Bank rates, on the other hand, move whenever the bank decides.

Rates for the general public, below ₹3 crore, as of October 2026. Post office rates from the Business Today report of 30 September 2026 on the quarter's rates. SBI card rates from SBI's deposit rates page (effective 15 December 2025). HDFC Bank from its FD interest rate page (effective 19 August 2026, the 3-year figure is the 2 years 11 months to 3 years slab, the 5-year figure is the 4 years 7 months to 5 years slab).

Notice the shape. At the post office, longer means higher. At both banks the 5-year rate is lower than the 1-year rate, because banks expect rates to fall and do not want to lock in 6.4% for five years. The post office rate is a policy decision, not a market one, and right now that policy favours the long tenure.

₹5 lakh for 1, 3 and 5 years: the rupees

All three compound interest quarterly, so a 7.5% rate actually earns 7.71% a year. Here is what ₹5 lakh earns in one year at each rate, calculated on the FD calculator with quarterly compounding.

₹5 lakh, quarterly compounding, rates as of October 2026. On the 5-year deposit the post office pays ₹7,625 more in the first year than SBI, and ₹5,792 more than HDFC Bank.

Now the full term, the way the calculator shows it, with the interest left to compound till maturity.

₹5 lakh, quarterly compounding, same rates. Over 5 years the post office column is ₹49,886 ahead of SBI and ₹38,152 ahead of HDFC Bank. That is the number every comparison site shows. It is also not quite how a time deposit works, which is the catch.

The catch: the post office pays the interest out every year

A bank cumulative FD keeps the interest inside the deposit, so year two's interest is earned on year one's interest as well. The post office time deposit does not. The scheme rules say interest is compounded quarterly and paid to the account holder at the end of each year. It goes to your post office savings account, or stays as a payable amount, but it does not join the deposit. Year five's interest on a ₹5 lakh TD is the same ₹38,568 as year one's.

So the amount a 5-year TD actually hands over is 5 × ₹38,568, which is ₹1,92,840 of interest, and ₹6,92,840 in total with the principal. Not ₹7,24,974. On a 3-year deposit it is 3 × ₹36,456, or ₹1,09,369, against the ₹1,17,538 a cumulative calculation shows.

Principal plus interest, quarterly compounding within each year, post office interest paid yearly and not reinvested. Rates as of October 2026.

The post office still wins, but the 5-year gap shrinks from ₹49,886 to ₹17,752 against SBI and to ₹6,018 against HDFC Bank. The higher rate is real, but a third of its advantage leaks out because the interest sits idle.

You can plug the leak yourself. Each year, take the ₹38,568 that lands in the savings account and open a fresh 1-year or 5-year TD with it, or put it in a post office RD. Done every year at the same 7.5%, that gets you back to the ₹7,24,974 figure. Left in the savings account at 4%, that first year's interest earns only about ₹1,566 in a year. The discipline is the price of the higher rate. A bank cumulative FD does the reinvesting for you and charges you a lower rate for the convenience. The post on cumulative vs non-cumulative FDs covers why the payout version always ends a little behind.

For someone who wants a yearly income from the deposit anyway, a retired parent who uses the interest for the year's medicines, this is not a catch at all. The post office is then simply paying 7.71% on an annual-payout deposit when the banks pay 6.19% to 6.61%.

The 5-year tax-saving version in both

Both places offer a deposit that gives you the ₹1.5 lakh deduction under section 80C of the old Act, which is section 123 in the Income-tax Act, 2025. The post office version is just the regular 5-year TD. The bank version is a separate product under the Bank Term Deposit Scheme, 2006. SBI's tax savings scheme page lists the rules: minimum ₹1,000, maximum ₹1.5 lakh a year, tenure 5 to 10 years, no premature withdrawal before 5 years except on death, and no loan or pledge against it during the lock-in. The rate is the bank's normal 5-year rate.

Quarterly compounding. The tax saved is the difference the income tax calculator shows on a ₹15 lakh salary in the old regime with and without the ₹1.5 lakh deduction: ₹2,57,400 of tax becomes ₹2,10,600.

Three things to keep straight. The deduction exists only in the old regime. In the new regime, which is now the default, the tax on that ₹15 lakh is ₹97,500 whether or not you make the deposit. The deduction is the same ₹46,800 in both places, so the rate decides, and 7.5% beats 6.05% and 6.40%. And the 80C deduction on the deposit does nothing for the interest, which is fully taxable at your slab in both.

Tax and TDS: the same slab, two different counters

The interest from a post office TD and a bank FD is taxed the same way: added to your income, taxed at your slab, every year as it accrues, even if you have not touched it. A 7.5% deposit in the 30% slab keeps about 5.16% after tax, and 6.05% keeps about 4.16%. The gap between the two shrinks in rupees but the order never changes.

The bank will cut TDS at 10% once your interest from that bank crosses ₹50,000 in a year (₹1 lakh for senior citizens). On ₹5 lakh at today's rates, no single deposit crosses that, but two ₹5 lakh FDs in the same bank will. If your income is below the taxable limit you file Form 121, which replaced 15G and 15H from April 2026. The post on FD interest tax, TDS and Form 121 has the full set of rules, so they are not repeated here.

At the post office the same tax law applies, but do not rely on TDS to remind you. Check your AIS on the income tax portal before filing, add up the interest from every TD and every bank, and declare it yourself. The interest is just as taxable whether or not anything was deducted.

Breaking it early: the post office rulebook vs the bank penalty

This is where the two differ most, and the post office is stricter. From the scheme text:

• Nothing can be withdrawn in the first 6 months.
• Between 6 months and 1 year, you get only the post office savings account rate, 4%, for the completed months.
• After 1 year on a 2, 3 or 5-year deposit, you get the TD rate for the period you completed (the 1-year, 2-year or 3-year rate as the case may be) minus 2 percentage points, with quarterly compounding for the completed years.
• A 5-year deposit closed after 4 years earns only the savings account rate, 4%, under the November 2023 amendment reported by Taxmann. Earlier it was the 3-year rate.
• Any interest already paid out at the higher rate is recovered from what you get back.

Banks are gentler. SBI's penalty circular charges 0.5% on deposits up to ₹5 lakh and 1% above that, applied to the rate for the period the money actually stayed, or the contracted rate, whichever is lower. HDFC Bank's FD terms say premature withdrawal pays 1% below the rate that applied on the booking date for the period the deposit stayed. Neither pays anything if you close within 7 days.

Say you book ₹5 lakh for 5 years and need the money after exactly 2 years.

Quarterly compounding, rates as of October 2026. Post office interest paid yearly, bank interest cumulative. Had the post office deposit run its full 5 years, those same 2 years would have paid ₹77,136.

So the higher post office rate comes with a condition: you must actually stay. If there is any real chance you will need the ₹5 lakh in a year or two, split it. Put the part you are sure about in the 5-year TD and the rest in a 1-year deposit, at the post office or a bank, where the exit is cheap.

Safety: DICGC's ₹5 lakh vs the Government of India

A bank FD is protected by deposit insurance. The DICGC guide says each depositor is insured up to ₹5 lakh per bank, principal and interest together, across all accounts held in the same capacity at that bank. A ₹5 lakh FD is therefore just over the line: the principal is covered, the interest on it is not. ₹4.6 lakh in one bank and the rest elsewhere would be fully covered. For SBI or HDFC Bank this is close to theoretical, but the legal cover is ₹5 lakh and no more.

The post office time deposit has no insurance because it needs none. The deposit is a liability of the Government of India, the same sovereign that stands behind the rupee. There is no upper limit and no per-branch cap. ₹5 lakh or ₹50 lakh, the backing is the same.

Both are safe enough for a household's fixed money. The limit matters at the margins: at a cooperative bank or a small finance bank paying 8%, the ₹5 lakh insurance is the whole story. For a large sum you want in one place, the post office has the clearer answer.

Senior citizens: no extra at the post office TD, but SCSS

Banks pay senior citizens about 0.5% more. On SBI's page the 5-year senior rate is 7.05% (that includes 0.5% under its We-care scheme), and HDFC Bank's 5-year senior rate is 6.90%. On ₹5 lakh that is ₹36,193 and ₹35,403 of interest in a year.

The post office time deposit has no senior citizen rate. Everyone gets 7.5% on 5 years, which at ₹38,568 a year still beats both senior bank rates. What the post office has instead is the Senior Citizens Savings Scheme at 8.2%, which pays ₹10,250 every quarter on ₹5 lakh, ₹41,000 a year, as simple interest, with a 5-year term and a ₹30 lakh ceiling. The post on senior citizen FDs compares SCSS, bank FDs and the post office monthly income scheme for a retirement corpus, so that comparison is not repeated here.

The small things that decide it in daily life

Rates get the attention, but the reasons people pick one counter over the other are usually these.

• Minimum and shape. The post office TD starts at ₹1,000 in multiples of ₹100, one deposit per account, and only four tenures. A bank FD can be for 15 months or some odd number of days, whatever special scheme the bank runs that season, and banks often pay their best rate on exactly such an odd tenure.
• Renewal. A matured TD can be extended for the same tenure at the rate on the maturity date, by application. Bank FDs auto-renew unless you say otherwise, which is convenient and also how people end up holding a 5-year FD at 6.05% they never chose.
• Interest payout. Post office TD: yearly, no choice. Bank FD: monthly, quarterly or cumulative. For a monthly household income the bank is simpler.
• Loan against the deposit. Banks lend against their own FDs easily, at a little above the FD rate. A regular post office TD can be pledged as security under paragraph 9 of the scheme, but you take the pledge form to a bank, not to the postmaster. The bank tax saver cannot be pledged at all.
• Opening and closing. A bank FD opens and closes in the app. The post office has internet banking too, but for many people a TD still means a visit, a form and a passbook.

Who should pick which

Money you will not touch for 5 years, below the tax-free limit or in any slab: the post office 5-year TD at 7.5% is hard to beat among guaranteed products right now. Just plan what to do with the ₹38,568 that lands every year, otherwise you give a third of the advantage back. If you would rather not deal with a yearly payout at all, NSC (7.7% for 5 years) and KVP (7.5%, the money doubles in 115 months) keep the interest inside till maturity. The NSC calculator and KVP calculator show the rupees.

Money you might need in 1 to 2 years: the 1-year post office TD at 6.9% still beats the banks' 6.25%, and the exit after a year costs nothing. For anything shorter than a year, a bank FD is kinder when plans change.

A monthly income from the deposit: a bank FD with monthly payout, or the post office MIS at 7.4% if the amount fits its limit. The yearly payout of a TD does not suit a monthly budget.

The 80C deduction in the old regime: the post office 5-year TD, because the deduction is identical and the rate is higher. The bank tax saver's one extra is a tenure of up to 10 years at a fixed rate.

More than ₹5 lakh in one place: the post office, or split the bank deposits across banks so each stays within the DICGC cover.

Someone who runs everything on the phone: they will keep the bank FD and pay 1% to 1.5% for it, a fair trade if the alternative is never getting round to the post office at all.

Hetal-ben put ₹4 lakh in a 5-year TD and ₹1 lakh in a 1-year one, both at the post office, and set a reminder for next October to redeposit the interest. Her nephew keeps his FDs at HDFC Bank and his SIPs running. Both are right for the money they have and the lives they lead, which is the only real answer the FD calculator can give you.

For general information, not as investment or tax advice. Rates and rules change, so check the latest before you decide. Tell us if something here is out of date. Editorial policy · Contact