With the rise of interest rates and minimal risks associated, government-backed Small Savings Schemes have become more attractive investment options than fixed deposits (FDs) of major banks. According to a report by the Economic Times, interest rates of fixed deposits have gone up substantially in the last 11 months. However, for the April-June quarter, the Center increased the interest rate of the National Savings Certificate by 70 basis points to 7.7 per cent. When compared to tax-saving FDs of prominent banks, small savings schemes yield better returns as these schemes not only offer attractive interest rates but also provide the added benefits of government security and tax deductions.
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According to the ET report, several well-known banks, including HDFC Bank, ICICI Bank, YES Bank, Axis Bank, and IDFC First Bank, offer tax-saving fixed deposits with an interest rate of 7 per cent. DCB Bank stands out with the highest interest rate of 7.6 per cent on five-year fixed deposits, while IndusInd Bank offers a competitive interest rate of 7.25 per cent on fixed deposits of the same duration.
Let’s Take A Look At Some Popular Small Savings Schemes
India Post offers a range of deposit options to investors through their post office saving schemes. Currently, there are nine different schemes provided by the government. These schemes include popular options such as Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC), Post Office Time Deposit, and Senior Citizen Savings Scheme (SCSS).
National Savings Certificate (NSC)
The National Savings Certificate (NSC) is a popular small savings scheme offered by the Government of India. It is a fixed-income investment instrument that provides individuals with an opportunity to save and earn interest over a fixed period. Currently, the NSC offers an interest rate of 7.7 per cent. There is no upper limit for investment in the NSC and the minimum investment required is Rs 100. Deposits of up to Rs 1.50 lakh in the NSC in a financial year qualify for tax deduction under Section 80C.
NSC is available for purchase at designated post offices across India. It comes with a fixed maturity period, typically five or ten years, during which the investment grows with the added benefit of compounded interest. The interest rate on NSC is determined by the government and is subject to periodic revisions.
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Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana (SSY) is also a government-backed small saving scheme that helps parents to save money for the long-term financial requirements of their girl child. In the SSY scheme, the government gives an interest rate of 8 per cent per annum. It also has tax benefits under 80c.
Senior Citizens Savings Scheme
The Senior Citizens’ Savings Scheme (SCSS) is a savings scheme specifically designed for individuals above the age of 60. This scheme offers them an opportunity to invest their savings and earn a higher interest rate. Both banks and post offices provide the Senior Citizens’ Savings Scheme, offering an attractive interest rate of 8.2 per cent. The scheme aims to provide financial security and steady income for senior citizens during their retirement years.
Post Office Time Deposit Scheme
Similar to bank fixed deposits (FDs), the post office provides time deposits with varying durations of one year, two years, three years, and five years. Investing in the 5-year post office deposit scheme not only offers a secure investment avenue but also qualifies for tax deductions of up to Rs 1.5 lakh per financial year. As of now, the 5-year post office deposit scheme offers an interest rate of 7.5 per cent. This scheme can be an attractive option for individuals looking for a long-term investment with a steady return and the added benefit of tax savings.
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Kisan Vikas Patra (KVP)
Kisan Vikas Patra (KVP) is a government-backed investment product offered in the form of certificates. It is a fixed-rate small savings scheme provided by the Indian Post Office, with a specific duration (115 months in the current issue) at the end of which your investment amount doubles. The KVP certificates can be purchased through select public sector banks and Post Offices. This investment option offers a competitive interest rate, presently set at 7.5 per cent.
Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a widely popular investment option that offers a high-interest rate of 7.1 per cent, compounded annually. One of the key advantages of investing in PPF is its tax benefits. PPF has a minimum tenure of 15 years, providing individuals with a long-term savings avenue. The minimum amount required to open a PPF account is Rs 500, while the maximum annual investment limit is Rs 1.5 lakh.
Even the Union Minister has said that these government schemes are offering better returns. Union Minister of State for Finance, Pankaj Chaudhary in a written reply to the query in Lok Sabha said, “Prevailing interest rates on Small Savings Schemes are better than those being offered through similar financial instruments being made available by leading Scheduled Commercial Banks. Rates applicable of Small Savings Schemes are being periodically revised.”
He added that several factors determine the interest rates that are applicable to Small Savings Schemes.
“These inter-alia include, recommendations of Syamala Gopinath Committee, the existence of taxation benefits for small investors and resultant rates(s) of return, interest, cost, etc,” the minister said.
