The government of India has introduced a range of investment vehicles widely known as small savings schemes of the post office. The PPF, the National Savings Certificate (NSC), the Senior Citizens Savings Scheme (SCSS), Post Office Recurring Deposit, 5-Year Time Deposit and the Sukanya Samriddhi Scheme are among them. The funds contributed by individuals in these schemes is forwarded to the Centre and deposited in the National Small Savings Fund (NSSF). Since the government collects the funds for these savings schemes they are backed by the government. For the first quarter of 2021-22, the government revoked its order cutting interest rates on small savings schemes such as National Savings Certificates (NSC) and Public Provident Fund (PPF). The Finance Ministry declared a 50-110 basis point reduction in interest rates for small savings schemes on Wednesday. Small savings scheme interest rates are calculated on a quarterly basis. Union Finance Minister Nirmala Sitharaman stated in a tweet on Thursday that the interest rates of the Government of India's small savings schemes will stay the same as they were in the last quarter (January-March) of the fiscal year 2020-21. Here, we will discuss why small savings schemes should be a must for your personal finance.
Fixed income options such as tax-saving fixed deposits, National Savings Certificates (NSC), Sukanya Samriddhi Account Scheme, Senior Citizen Savings Scheme, and the Public Provident Fund (PPF) are suitable for those seeking tax-saving investment options with minimal risk and volatility, as well as guaranteed returns. Though several small savings schemes are currently fetching decent returns along with tax incentives under section 80C, 5-year tax-saving fixed deposits are currently offering a low-interest rate of just 5.4 per cent, such as SBI. Here we will compare the post office savings schemes which are providing better returns than bank FDs along with tax benefits. (W.e.f 1.4.2021 to 30.6.21).
|Scheme||Rate of interest||Minimum and maximum deposit||Tax benefits|
|Post Office Time Deposit Account (TD)||1-3 year (5.5%), 5 year-6.7%||Rs 1000 and in multiple of Rs 100, no upper limit||5 year TD qualifies for the benefit of section 80C of Income Tax Act, 1961.|
|Senior Citizen Savings Scheme (SCSS)||7.40%||Rs 1000 up to Rs 15 lakhs||Qualify for deduction under section 80C of Income Tax Act.|
|Public Provident Fund Account (PPF)||7.10%||Rs 500 to Rs 1.5 lakh||Tax deduction under section 80C of Income Tax Act up to rs 1.5 lakh|
|National Savings Certificates (NSC)||6.80%||Rs 1000 and in multiple of Rs 100, no upper limit||Qualify for deduction under section 80C of Income Tax Act.|
|Sukanya Samriddhi Accounts||7.60%||Rs 250 to Rs 1.5 lakh||Deposit up to Rs 1.5 lakh exempt under Section 80C, interest and amount received on maturity is tax free|
The post office, nationalised banks, and several major private lenders operate small savings schemes. By visiting a post office or a bank branch and filling out the necessary paperwork, you can invest in or withdraw from these schemes. Banks such as SBI have made an online process, especially for those who want to contribute to small savings accounts like the PPF, which means you can easily open an account and withdraw funds from your PPF account. Apart from SBI, there are banks like HDFC, Axis and ICICI Bank which allow investors to open a PPF account online. To know the process to open an account with any of these banks, click here. Premature withdrawal of the FD is often subject to more strict criteria. In the first six months, Post Office FDs cannot be prematurely closed. If you withdraw within the first 6 and 12 months, you will only receive the same rate of interest as a Post Office savings account, which is currently capped at 4%.
Better returns than bank FDs
Undoubtedly post office savings schemes provide better returns than bank FDs. If we compare the interest rates on FD of the top 5 leading banks of India such as SBI, ICICI, Axis, HDFC and Kotak Mahindra Bank, they are just providing an interest rate ranging from 2.55 to 5.75% only. Small savings rates, on the other hand, are much better than these banks' FDs and are updated every quarter. In certain cases, though, if you've locked in an interest rate, you'll continue to benefit from it even though rates fall later. Bank FD rates are comparatively lower than small savings rates and do not offer tax benefits on interest, except senior citizens who can save up to Rs 50,000 a year under Section 80 TTB of the Income Tax Act, 1961. In the five-year pool, the difference between bank FDs and Post Office FDs, which are part of small savings schemes, is higher. SBI FD offers 5.4 per cent, HDFC Bank FD offers 5.5 per cent (for five years and one day), and ICICI Bank FD offers 5.35 per cent. On the other side, a five-year Post Office deposit provides 6.7 per cent, and a five-year National Savings Certificate offers 6.8 per cent. The Public Provident Fund (PPF), which is not purely identical to FDs because of its 15-year term, is yielding 7.1 per cent. Senior citizens get 0.5 per cent higher rates from banks, but they can also reap the benefits of the 5-Year Senior Citizens Savings Scheme (SCSS), which pays 7.4 per cent. The SCSS has a five-year limit that can be extended for three more years. The government guarantees Post Office FDs. The tax status is similar to that of bank FDs. For Post Office accounts, though, you may not be able to get the same standard of net banking and bill payment facilities.
Benefits for senior citizens
Last week two leading banks of India SBI and HDFC extended their special FD schemes for senior citizens until June 2021. The Senior Citizen Care FD scheme, provided by HDFC Bank, is a special fixed deposit (FD) scheme for senior citizens. On these special FDs for senior citizens, the bank proposes higher interest rates. On these deposits, HDFC Bank gives a 75 basis point (bps) higher interest rate. The interest rate on a fixed deposit made by a senior citizen under the HDFC Bank Senior Citizen Care FD will be 6.25 per cent. These rates are in force from Nov 20. In the Retail TD category, a special SBI Wecare Deposit for Senior Citizens is added, in which an additional premium of 30 basis points (over and above the existing 50 basis points) will be provided to Senior Citizens on their retail TD for tenors of '5 Years and Over' only. The deposit scheme "SBI Wecare'' has been extended until June 30, 2021. The interest rate on SBI's special FD scheme for senior citizens will be 80 basis points (bps) higher than the general public rate. SBI presently proposes a 5.4 per cent interest rate on five-year fixed deposits to the general public. If a senior citizen deposits in a fixed account under the special FD scheme, the interest rate will be 6.20 per cent respectively. Though the deadline of special FD schemes of these two banks has been extended until June, there are some post office schemes such as the Senior Citizens Savings Scheme, Post Office Monthly Income Scheme, which are currently providing higher rates of 7.4% and 6.6% respectively.
Savings Schemes are savings strategies provided by the government and other public sector financial institutions to the risk-averse investors of India. Investors can enable their wealth to cherish at higher interest rates and gain benefits such as tax exemptions by government-backed saving schemes. Savings schemes appeal to a diverse investor base, enabling them to prepare for a range of life pursuits such as retirement, children's higher education, marriage, and so on. They are perfect for creating long-term capital because they have a fixed lock-in period and have strong returns. To simplify, there are a number of saving schemes available that appeal to a wide range of risk profiles and investors. Since they are all backed by the government, they all pledge capital appreciation and sustainability at competitive rates. To pick the best choice, bear in mind the interest rates, tax advantages, and lock-in period of various schemes. You can also invest in a mix of the best investment strategies for optimum wealth generation.