Why this example works (rate & compounding)
India Post’s National Savings Time Deposit (the Post Office FD / Time Deposit) currently offers tiered interest rates; the 5-year tenure is listed at 7.50% per annum. These time deposits use quarterly compounding to calculate maturity values, which is what we use for the illustration below.
Assumptions used in this calculation
- Principal (P): ₹4,00,000
- Tenure: 5 years
- Interest rate (annual): 7.50% p.a. (5-year Post Office FD rate).
- Compounding frequency: Quarterly (4 times a year).
- No withdrawals or additional deposits — single lump sum.
Formula (short)
We use the compound interest formula with quarterly compounding:
Maturity = P × (1 + r/4)^(4 × n)Where P = principal, r = annual rate in decimal (0.075), and n = years (5).
Final result — maturity amount
Plugging the numbers in gives:
Maturity ≈ ₹5,79,979 after 5 years on a ₹4,00,000 deposit at 7.50% p.a. compounded quarterly.
This is very close to the target figure of ₹5.8 lakh and shows how quarterly compounding lifts the effective return above the nominal 7.50% rate. (See effective annual rate below.)https://esolr.org/https-www-esolr-org-pm-modi-agriculture-schemes-35440-crore-farmers-productivity-india/#more-623
Year-by-year balance & interest earned (breakdown)
The table below shows the balance at the end of each year and the interest earned that year (quarterly compounding applied):
| Year | Balance at year end (₹) | Interest earned that year (₹) |
|---|---|---|
| Start (Principal) | ₹4,00,000.00 | — |
| Year 1 | ₹4,30,854.35 | ₹30,854.35 |
| Year 2 | ₹4,64,088.67 | ₹33,234.32 |
| Year 3 | ₹4,99,886.55 | ₹35,797.88 |
| Year 4 | ₹5,38,445.73 | ₹38,559.18 |
| Year 5 (Maturity) | ₹5,79,979.21 | ₹41,533.48 |
Total interest earned over 5 years ≈ ₹1,79,979 (i.e., maturity − principal).
Effective annual rate (what compounding gives you)
Quarterly compounding converts the nominal 7.50% into an effective annual rate (EAR):
EAR = (1 + 0.075/4)^4 − 1 ≈ 7.7136% per year.
That extra ~0.21 percentage point (7.7136% vs 7.50%) across multiple years is why the final amount reaches ≈₹5.8 lakh.
Why choose Post Office FD?
- Sovereign guarantee: Post Office schemes are backed by the Government of India, which appeals to risk-averse investors.
- No minimum deposit surprises: Minimum usually ₹1,000 — easy to open and operate at post offices nationwide.
- Predictable returns: Fixed rate and quarterly compounding make maturity certain (unlike market-linked options).
Points to check before you invest
- Rate validity date: Post Office rates are periodically revised (the 7.50% figure here is the published 5-year rate for the July–Sept 2025 slab). Always verify the latest rate at your post office or the India Post site before depositing.
- Tax on interest: Interest on Post Office FDs is taxable and must be declared under “Income from Other Sources.” There is no TDS for Post Office FDs (unlike many bank FDs), but you still owe tax if liable under your slab. Check current tax rules.
- Premature withdrawal: Allowed under conditions, but may attract penalties — read the scheme rules if you may need liquidity.
- Senior citizen rates: Senior citizens sometimes get special rates; if you are 60+, confirm whether a higher rate applies.
Quick checklist — before you walk into the post office
- Ask for the latest Time Deposit (Post Office FD) interest rate sheet (confirm the 5-year rate).
- Confirm compounding frequency (generally quarterly for Time Deposits).
- Carry KYC documents and nomination form for a smooth account opening.
- Decide if you need a single deposit or laddered deposits (staggering maturities for liquidity).
Bottom line
A ₹4,00,000 Post Office Fixed Deposit for 5 years at the published 7.50% p.a. (compounded quarterly) grows to roughly ₹5,79,979, giving total interest of about ₹1,79,979 over five years. The sovereign backing and predictable returns make Post Office FDs a conservative choice for capital preservation and steady growth — just confirm the exact, current rate at the time you invest.