6 government schemes that offer higher returns than FDs

Fixed deposits (FDs) are a great way to keep your money safe. With the rising cost of living, investing your money in low-yield schemes can reduce your purchasing power.

Instead, you can turn to other government-backed schemes. These options are low-risk and can be aligned with specific goals like:

• Stable monthly income
• Securing a child's future
• Retirement savings

And most importantly, some of them even offer interest rates higher than 5-year FD returns from all banks (excluding Small Finance Banks).

Here are 6 such schemes that help you protect your capital and beat inflation:

Post Office Monthly Income Scheme (POMIS)

For those who want a stable only income without having to dip into their principal savings, POMIS is a reliable option.

• Current interest rate: 7.4% p.a. (revised quarterly)
• Interest payout: Monthly (starts a month after initial investment)
• Lock-in: 5 years
• Premature withdrawal: Allowed after 1 year with a penalty
• Minimum investment: ₹1,000
• Investment cap: ₹9 lakh (single) or ₹15 lakh (joint)
• Taxation: Interest earned is taxable per the individual tax slab

The interest earned is the monthly income. While your principal stays untouched until maturity. However, POMIS is only for adult Indian residents; NRIs are not eligible.

Comparing this with the SBI Annuity Deposit Scheme (ADS): It pays both interest and principal monthly, which means your initial investment keeps shrinking, and as a result, so does your interest income.

Additionally, SBI ADS currently offers around 6.5% p.a. POMIS beats that with higher stability and capital protection.

Senior Citizens' Savings Scheme (SCSS)

For retired people (over 60 years of age) looking for a steady income, SCSS may be one of the best government-backed options, especially if your parents have received a lump sum amount, such as a retirement gratuity or final settlement.

• Current interest rate: 8.2% p.a. (revised quarterly)
• Interest payout: Quarterly
• Lock-in: 5 years (extendable for 3 more years)
• Premature withdrawal: Allowed with penalty
• Investment limit: ₹1,000 to ₹30 lakh
• Taxation: Interest earned is taxable per the individual tax slab

It's simple, you invest once and get returns every quarter for 5-8 years. All the while, your principal stays untouched. However, even if you do not claim the quarterly interest, it does not earn any additional interest.

Again, compare this with SBI ADS (for senior citizens), which returns part of your principal every month.

As the principal shrinks, so does the interest income. Even at 7.5% p.a., the yield is lower over time. Meanwhile, SCSS keeps your money intact and your returns steady.

Sukanya Samriddhi Yojna (SSY)

As a parent to a girl child, you can use SSY to build a long-term financial cushion for her education and/or marriage. The scheme offers high interest and full tax exemption, making it one of the most rewarding options for goal-based savings.

• Current interest rate: 8.2% p.a. (compounded yearly; revised quarterly)
• Maturity: 21 years from the date of investment or when she gets married (after turning 18)
• Contribution period: 15 years
• Premature withdrawal: Allowed
  • For the medical treatment of life-threatening diseases of the girl child
  • In the event of the guardian's death
• Investment limit: ₹250 to ₹1.5 lakh p.a. (either lump sum or in multiple instalments)
• Taxation: Completely tax-free

You can open an account at any time before your daughter turns 10 years old, and you only need to contribute for the first 15 years. However, the account continues to earn interest until maturity.

The returns are fully tax-free. In contrast, returns from minor FDs are taxed as per the guardian's slab. You can easily open it at your nearest Post Office, State Bank of India (SBI), or any public sector bank.

Note: If you miss the minimum deposit in any financial year, the account will be treated as ‘Account under Default'.

National Savings Certificate (NSC)

It offers predictable growth without market risk. So, if you are an Indian individual over the age of 10 looking for a fixed-return investment option, NSC may be ideal for you.

• Current interest rate: 7.7% p.a. (compounded yearly; revised quarterly)
• Payout: At maturity
• Premature withdrawal: Not allowed except in case of the holder's death or under a court order.
• Minimum investment: ₹1,000
• Where to invest: Post offices across India
• Taxation: Interest earned is taxable per the individual tax slab

Unlike FDs, there's no TDS at maturity. Your full maturity value is received without deductions.

Compared to 5-year bank FDs (currently lower yielding) and evenKisan Vikas Patra (KVP) at 7.5%, NSC delivers better returns. It can also be used as collateral for loans.

For fixed income and capital safety, NSC is a clear step above traditional options.

Public Provident Fund (PPF)

This is for the investors who want to grow their savings steadily, without worrying about market volatility. It offers guaranteed returns and your full principal back at maturity.

• Interest rate: 7.1% p.a. (compounded annually)
• Tenure: 15 years (extendable in 5-year blocks)
• Investment limit: ₹500 to ₹1.5 lakh per year
• Tax status: Fully tax-exempt (EEE)

You can invest a small amount yearly (min. ₹500 or the account is discontinued), let it grow tax-free, and extend the account even after maturity.

PPF does not require asset allocation or monitoring. It suits conservative investors who prefer simplicity and guaranteed returns over complexity and stock market risk.

National Pension Scheme (NPS)

NPS is designed for long-term retirement planning. It helps you build a diversified portfolio across equity, corporate bonds, and government securities. Additionally, it helps you stay disciplined with regular contributions.

• Expected returns: 10–14% p.a. (market-linked)
• Lock-in: Until age 60
• Minimum contribution: ₹1,000 per year
• Who can invest: Indian citizens (residents and NRIs) aged 18–70

Investments are made across asset classes:

• Scheme E: Equity (maximum 75% exposure)
• Scheme C: Corporate bonds
• Scheme G: Government bonds
• Scheme A: Alternate assets

At maturity, 60% of the corpus can be withdrawn as a lump sum (tax-free). The remaining 40% is used to buy an annuity that gives you post-retirement income (this is taxable as per the individual tax slab).

Unlike PPF, NPS isn't tax-free when withdrawn. But it offers broader exposure and higher return potential if you can handle some market volatility.

It works best for disciplined investors who want long-term growth, not just capital protection.

Conclusion

When it comes to money, safety is paramount. However, it's not enough. You also need your money to grow. These 6 government-backed schemes offer both: capital protection and inflation-beating returns.

Each serves a specific purpose: income generation, child-focused savings, or retirement planning. Choosing the right one depends on your goal and time frame. But when selected wisely, they offer a safer path to wealth preservation.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.