A savings account in a post office is very similar to a savings bank account. It is a safe instrument to park funds that you might need to liquidate fully or partially at very short notice. Post office savings account is especially suited for those living in rural and semi-rural areas where the reach of banks is limited.

RATE OF RETURN:
3.5 per cent, per annum, credited annually.

TAX CONSIDERATION :
Interest is totally free from income-tax under section 10(15)(i). No TDS on interest.

MODE OF ACCOUNT-HOLDING:
Any number of accounts (single/joint) can be opened but not more than one account in one post office. A joint account can also be opened in addition to the single account and pension account in the same post office. An adult and a minor cannot open a joint account. Similarly, two/three minors cannot open a joint account. Two or three adults should open a joint account only.
The amount of first deposit should be at least Rs.20 in the case of ordinary account and Rs.250 in the case of cheque account.

OPERATION OF THE ACCOUNT
There are certain things peculiar to a post office savings account. To start with, the maximum balance that can be held in a single and joint account is Rs.50,000 and Rs.1,00,000, respectively. These limits on balance are observed strictly and deposits in excess of these limits are not accepted from depositors. For the purpose of maximum balance, the depositor's share in the balance of joint account(s) shall be taken as one-half or one-third of such balance, according as two adults or three adults hold the account.

The date of credit in the account of money deposited by cheque or any other instrument shall be the date of encashment of the cheque, etc. The deposit or withdrawal by cheque can be made in the cheque account, without the production of the pass-book.

Interest on deposits in an account shall be calculated for a month on the lowest balance, at credit of an account between the close of the 10th day and the end of the month. If the account is closed in the course of the year, interest shall be allowed upto the end of the month preceding the month in which the account is closed.

If the cheque tendered for deposit is drawn in favour of the depositor, there is no need to make any endorsement (signature) by the depositor on the reverse of the cheque, as the instrument is tendered with the pay-in-slip for deposit. The Counter Assistant will write the account number on the back of the cheque and impress the date stamp. There is no objection in the acceptance of a cheque drawn by a third party in favour of the post-master, provided the cheque is accompanied by an application from the depositor representing the post-master to credit the amount into his account. If the cheque drawn on the POSB in favour of a person other than the depositor, it may also be accepted for credit in his P.O. savings account, provided that it has been duly endorsed in favour of the depositor.

If the cheque issued by an office of Postal Department is presented by the depositor for credit in his savings account, the date of credit in his account will be given the date of presentation of the cheque and not the date of encashment. The entry in the pass book will, however, be made after the cheque is encashed. Further, cheques issued by the Postmaster, when deposited in his savings accounts by the depositors standing in the head office, from which the cheques were issued, may be credited straight away, after verifying their genuiness, in the pass-book and ledger card of the depositor on the date of presentation, and cheques shown as remittance to the bank. If such cheques are deposited in savings accounts in any of the sub-offices under the jurisdiction of the head office issuing the cheques, the sub office will not credit the amount straight away but will follow the procedure applicable to other cheques. The credit of these cheques will be afforded straight away as soon as they are received in the head office after verifying their genuiness.
Outstation cheques/drafts can be deposited in saving accounts. For collection of the outstation cheques, commission at the rate of 30 percent subject to a minimum of Rs.5 and maximum of Rs.15 will be charged to the depositor's account as collection charges.

WITHDRAWAL:
Withdrawals, especially from small post offices in rural areas may require prior information to be given to the post office, so that adequate amount of funds may be made available.
No withdrawal should be allowed in the account which has the effect of reducing the balance to less than Rs.20 in an ordinary account and Rs.250 in a cheque account. No subsequent deposit shall be less than Rs.5, and no withdrawal should be less than Rs.5.
The interest earned in savings accounts is free of income tax and the deposits in these accounts are also exempt from Wealth Tax.