FDs vs small savings schemes: Which saving instruments offer better returns?
Several post office savings schemes offer marginally higher returns over what most banks give on their fixed deposits (FDs)
Conservative investors tend to invest in fixed deposits (FDs) of banks for the security and assurance they offer. Here we examine the returns given by different post office schemes and compare them with those on fixed deposits of different banks.
Typically, most banks offer annual interest in the range of 6.6-6.7 percent on their fixed deposits after the latest repo rate cut on April 9.
At the same time, small savings schemes have given a return of upto 7.5 to 8.2 percent based on the scheme you choose.
Let us dig deeper into it.
Fixed deposits of banks
State Bank of India offers 6.7 percent per annum interest on one-year fixed deposit. HDFC Bank offers 6.6 percent interest, while ICICI Bank offers 6.7 percent and Kotak Mahindra Bank offers 7.1 percent interest on its one-year fixed deposit.
Notably, some of the banks cut their FD interest rates recently in the wake of repo rate cuts on some tenures.
| Instrument | Interest p.a. (%) |
|---|---|
| Kisan Vikas Patra | 7.5 |
| Fixed deposit in HDFC Bank | 6.6 |
| Fixed deposit in ICICI Bank | 6.7 |
| Fixed deposit in Kotak Mahindra Bank | 7.1 |
| National Savings Recurring Deposit | 6.7 |
| National Savings Time Deposit 1-yr | 6.9 |
| Fixed deposit in SBI | 6.7 |
| National Savings Time Deposit 5-yr | 7.5 |
| Senior Citizen Savings Scheme | 8.2 |
| Public Provident Fund (PPF) | 7.1 |
| Sukanya Samriddhi Account | 8.2 |
| National Savings Certificate | 7.7 |
(Source: Bank websites; indiapost.gov.in)
Small savings scheme
Post office schemes offer slightly higher returns but only when investment is made for a longer duration. For instance, the National Savings Recurring Deposit gives an annual return of 6.7 percent.
National Savings Time deposit offers 6.9 percent return on 1-year time deposit whereas it gives a higher return of 7.5 percent on 5 year deposit. For 2 and 3 year deposits, annual returns stand at 7 per cent and 7.1 percent per annum. Depositors can earn 8.2 percent on a senior citizen savings scheme.
Public provident fund offers 7.1 percent per annum and Sukanya Samriddhi Account beneficiaries stand to earn 8.2 percent. The National Savings Scheme offers 7.7 percent per annum. Kisan Vikas Patra offers 7.5 percent per annum.
Tax benefit
An important consideration that should weigh your decision of opting for one scheme over the other is the tax benefits offered by post office schemes which are absent in case of fixed deposits. Although 80C tax benefits offered on the investment made in these schemes is not available under the new tax regime, the interest income is tax free. In contrast, interest earned on fixed deposits is always taxable.
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