According to India Post, National Savings Time Deposits currently offer interest rates ranging from 6.9 per cent to 7.5 per cent depending on the tenure, with the five-year deposit offering the highest rate in this category. As of October 7, 2026, five-year FD rates for general customers were around 6.40 per cent at HDFC Bank, 6.50 per cent at ICICI Bank, 6.05 per cent at SBI and 6.10 per cent at PNB. This shows that someone willing to lock money for five years can currently get a higher stated rate from the five-year Post Office Time Deposit than from these large-bank FDs. However, a significant development has emerged where Post Office schemes rates have remained unchanged since January 2024, while banks have been lowering FD rates in response to the RBI's falling repo rate, which dropped from 6.5% at the start of 2025 to 5.25% by December 2025 and has stayed there through 2026.
A ₹9 lakh investment in Post Office Monthly Income Scheme generates ₹5,550 monthly at 7.4% interest, compared with an indicative ₹4,875 from a bank FD at 6.5%. According to latest data, the Post Office MIS offers ₹66,600 annual interest versus ₹58,500 from bank FDs, representing a ₹8,100 annual difference before taxation. The MIS has a 5-year tenure with returns at maturity, while the maximum investment limit is ₹9 lakh for single account and ₹15 lakh for joint accounts. Premature closure is allowed after one year, subject to 2% deduction if closed before three years and 1% if closed from three years to maturity.
Other government-backed schemes are offering even more competitive rates. The National Savings Certificate carries an interest rate of 7.7 per cent, while Kisan Vikas Patra offers 7.5 per cent. The Monthly Income Scheme offers 7.4 per cent, while PPF currently pays 7.1 per cent. For senior citizens, the Senior Citizens Savings Scheme is offering 8.2 per cent per annum, and Sukanya Samriddhi also carries a rate of 8.2 per cent, though it is meant specifically for savings for a girl child. The rate difference becomes particularly significant when considering that Post Office schemes carry a full government guarantee while banks offer only ₹5 lakh of deposit insurance through DICGC.
The tax treatment is a crucial factor that can flip the winner between different investment options. Interest from bank FDs and Post Office Time Deposits is taxed at your slab rate every year, while arbitrage funds get equity taxation if held for more than 12 months. For someone in the 30% tax bracket (plus 4% cess), out of every ₹100 of interest earned, about ₹31 goes to the government. Arbitrage funds offer a significant advantage with gains taxed at just 12.5% (plus cess) if held for more than 12 months, and the first ₹1.25 lakh of such gains per year is completely tax-free. This means that for arbitrage funds to match the post-tax returns of fixed deposits, they need to offer about 6% after tax, while fixed deposits would need to offer about 8.7% before tax to match at the 30% slab. For conservative savers, NSC still looks like a good option for those in higher tax brackets who can lock money away for five years, offering certainty with higher rates and interest that stays invested until maturity.
