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With no change in rates, small savings schemes score over bank FDs

Excess cash with banks averaged Rs39,700 crore ($6.2 billion) last week, compared to a peak of more than 5 trillion rupees in March, according to Bloomberg Intelligence India Banking Liquidity Index. Photo: Hemant Mishra/MintPremium
Excess cash with banks averaged Rs39,700 crore ($6.2 billion) last week, compared to a peak of more than 5 trillion rupees in March, according to Bloomberg Intelligence India Banking Liquidity Index. Photo: Hemant Mishra/Mint

Banks have reduced fixed deposit rates following a cut in RBI’s policy rates meant to stabilize the covid-19-hit economy

INDIA : The government has kept interest rates on small savings schemes, including Public Provident Fund (PPF) and Senior Citizens’ Savings Scheme (SCSS), unchanged. This makes them more attractive than bank fixed deposits (FDs).

Banks have reduced FD rates over the past few months with the Reserve Bank of India cutting policy rates to support the covid-19-hit economy.

PPF’s interest rate has been held at 7.1%. Post office term deposit rates continue to be 5.5% for deposits of one to three years and 6.7% for five years. In contrast, the State Bank of India revised its FD rates downwards on 27 May. SBI FD rates now range from 2.9% (for deposits of seven to 45 days) to 5.4% (for deposits of five to 10 years) for deposits less than 2 crore. Even large private sector banks like HDFC Bank offer fairly similar rates to SBI.

The National Savings Certificate (NSC), which has a tenor of five years, is particularly competitive against five-year bank FD rates. NSC’s rate has been held at 6.8%.

The highest rate among small savings scheme is being given by the Sukanya Samriddhi Yojana (SSY)—7.6%. However, SSY is only available to the parents of a girl child below the age of 10.

Some small savings schemes like SCSS are only available to senior citizens. SCSS has a term of five years which can be extended by three years. It has a maximum investment limit of 15 lakh per individual. However, its rate is substantially higher than bank FD rates for senior citizens. For example, the highest SBI rate for senior citizens is 6.20%, lower than the 7.4% on SCSS.

“Currently, small savings schemes are attractive for conservative investors depending on their time horizon. Short-term investors can consider overnight, liquid and high-quality ultra short-duration funds for better liquidity," said Rushabh Desai, a Mumbai-based financial planner.

ABOUT THE AUTHOR

Neil Borate

Neil heads the personal finance team at Mint. A former colleague called them 'money nerds' and that's what they are. They cover topics like mutual funds, taxation and retirement, all to improve your chances of building wealth. Neil graduated with a degree in law and economics. He passed the CFA Level I exam and began his writing career at Value Research, a mutual fund research firm in 2016. He joined the personal finance team Mint in 2019. Everyday, the Mint Money Team tackles personal finance questions such as where to invest and where to borrow, through articles, charts and reader queries. They also have a daily podcast - 'Why Not Mint Money' and an annual ranking of mutual funds - the Mint 20.
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