Almost all of the post office savings scheme more popularly known as small savings scheme, beat interest rates from bank deposits. However, there are some that are really good because of their tax benefits and also benefits under Sec80C of the Income Tax Act. Not to mention that in the present context whether you are looking at short term or long-term post office small savings schemes, they tend to beat bank interest rates by a distance.
How some of these compare?
|1-2 years||2-3 years||5 years and above|
|Post office time deposit||5.5%||5.5%||6.8%|
|Public Provident Fund (can be purchased from banks and post office)||NA||NA||7.1%|
|Kissan Vikas Patra (post office scheme)||NA||NA||6.9%|
|National Savings Certificate (post office)||NA||NA||6.8%|
|Senior Citizens Savings Scheme||NA||NA||7.4%|
The three stand-out post office schemes
Post office time deposit – 5 years
If you are looking at a saving instrument for a period of 5-years, then the post office time deposit will beat bank interest rates. In fact, the maximum interest rates that banks offer on a 5-year deposit is 5.5 per per annum. We are talking of the larger private and public sector banks and not the smaller ones or the small finance banks.
Compared to the same, you get an interest rate of 6.8% on a time deposit of the post office. If the deposits are really large by an investor, than an interest differential of 1.3% per annum can make a big difference. However, one of the disadvantages is that if you invest for such a long tenure and if interest rates go up, you could lose.
National Savings Certificate
The interest here again like the NSC is around 6.8%. A sum of Rs 1000/- grows to Rs 1389.49 after 5 years. Interest rates over the last few years have just collapsed and for a safe government backed security, this is not bad at all. Another advantage of that the National Savings Certificate is that it gives you tax benefits under SEC80C.
However, it's important to note that the interest earned is not exempted from tax. So, the interest earned is subject to tax. Again, a good interest rate, but the tenure is too high, as interest rates could climb in the more medium term. Interestingly, an individual can open multiples accounts under the scheme and up to 3 joint accounts can be opened.
This is not a post office scheme in that sense, given that even banks open the same. Nonetheless, it is still popularly a part of the post office schemes as well. This is one scheme, which is a must have in any portfolio.
The interest earned is completely tax free in the hands of investors, while the investment itself, gives you tax benefits under SEC80C. The interest rate of 7.1% is the best and is probably beaten only by the Senior Citizens Savings Scheme.
The one disadvantage of the scheme though is the long tenure of 15-years. If the PPF account is closed at anytime before 5 years, there is a charge that is deducted from the principal amount. So, if you are not going to invest for the long-term, its better you do not invest.
About the author
Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, mutual funds and tax planning.