Back3 post office schemes give higher returns than bank FDs with 80C deductions
Debt investors are scrambling to find banks giving better interest rates as bank fixed deposit rates are rising, but small savings schemes or post office savings schemes are government-backed investments that are now providing higher returns than bank fixed deposits.
PremiumDebt investors are scrambling to find banks giving better interest rates as bank fixed deposit rates are rising, but small savings schemes or post office savings schemes are government-backed investments that are now providing higher returns than bank fixed deposits. Small Savings Schemes are preferable to bank fixed deposits in increasing interest rate environments because they have quarterly interest rate revisions as opposed to fixed interest rates of bank fixed deposits. Since the RBI increased the repo rate in August, all major banks have increased their interest rates on fixed deposits in an effort to entice investors. Major banks such as SBI is offering an interest rate up to 5.65%, HDFC Bank is offering an interest rate up to 6.10%, ICICI Bank is offering an interest rate up to 6.10%, Axis Bank is offering an interest rate up to 6.05%, and PNB is offering a maximum interest rate of 6.10%. However, all of these interest rates, even with the recent increases by the aforementioned institutions, are still much lower than the widely popular small savings schemes, like the Senior Citizen Savings Scheme (SCSS), Public Provident Fund Account (PPF), and Sukanya Samriddhi Accounts.
Senior Citizen Savings Scheme (SCSS)
Elderly individuals searching for a secure investment that can yield higher returns than bank fixed deposits typically opt for the Senior Citizen Savings Scheme (SCSS). Currently, SCSS provides a 7.4% annual interest rate that is payable in quarterly payments. In the current environment of an interest rate upswing, this SCSS interest rate is significantly higher than the fixed deposit rates offered by banks. An individual over 60 years old can establish an SCSS account individually or jointly with his spouse.
The minimum deposit in all SCSS accounts opened by an individual must be Rs. 1000 and in multiples of Rs. 1000, subject to a maximum deposit of Rs. 15 lakh. After fixed deposits, investments made under this plan are attractive tax-saving investments for older residents, since they qualify for the benefits of section 80C of the Income Tax Act of 1961. However, if the total interest in all SCSS accounts surpasses Rs. 50,000 in a fiscal year, the interest earned is taxable and will attract TDS deduction. The Senior Citizen Savings Scheme (SCSS) offers options for premature withdrawals and account extension, along with a 5-year maturity term.
Public Provident Fund Account (PPF)
PPF is a very well-liked small savings plan among debt investors for those seeking exempt-exempt-exempt (EEE) tax benefits on investments. It is a highly sought-after investment choice for tax-savers due to the investments made and the fact that the interest and maturity amounts are tax-exempt. In comparison to fixed deposit interest rates offered by banks like SBI, HDFC, PNB, BOB, Axis, HDFC Bank, Kotak Mahindra Bank, and many more, PPF now gives 7.1% annually (compounded annually).
The minimum deposit required to open a PPF account is Rs. 500, and the maximum annual limit is Rs. 1.5 lakh. PPF is typically best suited for long-term investors because the scheme has a 15-year maturity period and offers the investor three options upon maturity: withdrawal of the maturity amount, account extension for a block of five years, or retention of the maturity benefit in the account without further deposit. After five years from account opening, PPF also permits premature withdrawals, and the account holder is permitted to make one partial withdrawal per financial year after five years, omitting the year of account opening.
Sukanya Samriddhi Accounts
Sukanya Samriddhi Account (SSA) is the most well-liked small savings scheme for parents who want to save money for their girl child's future. SSA is now offering a 7.6% annual compound interest rate, which is again significantly higher than the fixed deposit interest rates of the above-said banks. In order to open an SSA account in a girl's name who is less than 10 years old, the guardian must deposit a minimum of Rs. 25 and a maximum of INR. 1,50,000 in a single financial year. Deposits made in this account are eligible for tax deductions under section 80C.
The guardian will be responsible for managing the account until the girl child turns 18 years old, at which point she will be allowed to manage it independently. However, after turning 18 or passing the 10th grade, she can only make partial withdrawals of up to 50% of the account balance. The account may be closed by collecting the maturity once 21 years have passed since the account was opened or at the time a girl child marries after turning 18 years old. After five years of the account's opening, SSA accounts also allow premature withdrawals for unanticipated expenses.
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