Post Office Time Deposit interest rate: 5 key things to know before October rates are announced

Post office fixed deposits or time deposits are heading into the September 30 review after a long spell of rate stability. The five-year time deposit has paid 7.5% since April 2023, the one-year and two-year deposits have been at 6.9% and 7.0% since July 2023, and the three-year deposit has stood at 7.1% since January 2024, according to National Savings Institute (NSI).

Post Office Time Deposit allows a minimum deposit of ₹1,000 with no upper limit. The interest is compounded quarterly. These deposits have a lock-in matching the tenure with defined premature-closure penalties.

Only the five-year TD qualifies for Section 80C deduction but interest on all four deposits is taxable at slab rate. A ₹1 lakh booking in the five-year TD at 7.5% compounds to about ₹1.45 lakh at maturity; ₹5 lakh grows to roughly ₹7.25 lakh.

Under the Shyamala Gopinath Committee framework in force since 2016, the three-year and five-year TDs are benchmarked to G-secs of matching maturity with a 25-basis-point spread. The shorter tenures are measured against shorter-dated government securities.

In the July-September reference quarter, the 5-year G-sec averaged roughly 6.5%, implying a formula rate of about 6.75% for the five-year TD against the 7.5% actually paid. The 3-year G-sec averaged near 6.3%, implying about 6.55% against 7.1% and the 2-year G-sec closed September around 6.1% against a 7.0% deposit rate. On paper, the short post office deposits carry among the widest premiums to their benchmarks in the entire basket.

The reference quarter ended with the steepest bond selloff of 2026. Indian government bonds have declined for six consecutive weeks. The benchmark 10-year G-sec touched about 7.1% on September 24-25, its highest in over four months, while the 5-year yield climbed to around 6.5-6.7%. All of this pushes the formula-implied TD rates up, reducing the chances of any TD rate cut.

The government has repeatedly declined to pass formula-implied cuts to depositors. So far, the government has chosen not to apply the Gopinath Committee's formula mechanically. Moreover, small savings schemes like Post Office TD fund a meaningful slice of government borrowing through NSSF.

Bank fixed deposit rates have drifted lower through 2025-26 after the RBI's four rate cuts in 2025. This has left post office TDs with among the best guaranteed returns in the market.

Like a bank FD, a post office TD locks the rate for its full tenure at the time of booking, so any revision on Wednesday will apply only to fresh deposits. Savers confident about locking money away for five years can book the 7.5% TD before October 1 to immunise themselves against any surprise.