Post Office Small Savings schemes offering higher interest rate than bank fixed deposits: Choose as per your goal

Investors India|Nov 2019

Post Office Small Savings schemes offering higher interest rate than bank fixed deposits: Choose as per your goal
With Reserve Bank of India cutting repo rate by 135 basis points till now in 2019, the fixed deposit rates are bound to come down as well.
Sanjeev Puri

Most banks have already reduced the interest rate on their fixed deposits across different tenure. However, the government has maintained status quo on Post Office Small Savings schemes for the quarter ending December 2019. as of now, the rates on small savings is higher than FDs across most tenures. This gives investors an opportunity to get better returns on their investments.

The post office investments such as Public Provident Fund (PPF), National Savings Certificates (NSC), Senior Citizens Savings Scheme (SCSS) and Sukanya Samriddhi, KVP etc are popular investment option among lakh of investors looking for fixed income backed with a government guarantee. Since April 1, 2016, the rate of interest on small savings are notified by the government on a quarterly basis and are linked to the yields of the government securities (G-Sec) of similar maturities. For the July to September quarter of the FY, the interest rate across all products was cut by 0.1 per cent per annum. But, for the October to December quarter, the rates have not been modified.

Here are few small savings post office investments to look at in the falling interest rate scenario:

Sukanya Samriddhi Yojana (SSY)

SSY is a 21-year scheme and can be opened only in the name of girl child below 10 years. No matter what the age of the child is at the time of SSY account, the scheme will run for 21 years from the date of its opening. For example, if the child is 7 years, the maturity of SSY will happen when the child attains 28 years.

As a parent, one has to deposit only for the initial 15 years and during the last six years even though the scheme continues, no deposit needs to be made.

Only on medical grounds, one is allowed to prematurely exit from the scheme. After the girl attains the age of 18, a maximum of 50 percent of the funds of the preceding year may be withdrawn for the girl’s higher education. In case of marriage, the SSY is allowed to be closed provided she has turned 18. SSY is a tax-friendly investment as it qualifies for tax benefit under Section 80C and even the interest earned is tax-free. Being a government-sponsored scheme, SSY carries the highest safety of principal and interest income. Currently, (October to December quarter), the interest rate is 8.4 percent per annum, compounded annually and paid on maturity.

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Nov 2019