Post Office vs FD vs Arbitrage: Which Beats Tax?

Post Office FDs, bank FDs, and arbitrage funds all promise returns — but tax treatment flips the winner. Here is which one actually puts more rupees in your pocket, based on your income slab.

Here's what happened: Post Office time deposits currently offer 6.9%–7.5% interest — slightly above most large-bank FD rates — but all interest is taxable at your income slab rate, same as bank FDs.. Arbitrage mutual funds, which exploit price gaps between cash and futures markets, are classified as equity funds for tax purposes, meaning gains held over 12 months attract only 12.5% LTCG tax.. The RBI repo rate (currently 6.0% after the June 2025 cut) sets the floor for all FD rates — when it falls, bank FD rates follow within weeks, making tax efficiency more important than ever..

What you should do: Calculate your effective post-tax return: divide your annual FD interest by (1 minus your tax slab) — if it falls below 5%, explore arbitrage funds as a liquid alternative.. Check your Post Office FD maturity date now — if it is within 3 months, compare current bank FD rates before auto-renewal locks you into the same rate for another term.. If you are in the 20%–30% tax slab and need parking funds for 1–3 years, compare arbitrage fund 1-year trailing returns on AMFI's website against your bank's FD rate after applying your tax rate..

Post Office 5-year Time Deposit qualifies for Section 80C deduction — bank FDs only qualify if they are specifically a 5-year tax-saver FD. That deduction can swing the winner entirely for investors in the 30% bracket.

For readers weighing their credit and loan options, our personal loan guide and CIBIL score resources put this update in context.