The Charm Of Small Savings

Government-sponsored small savings schemes have found a great fan following owing to their guaranteed return backing and tax savings in some cases

- Narayan Krishnamurthy

Fixed return instru­ments give a curious sense of satisfac­tion—the comfort of knowing that returns are ass­ ured and your money is safe as no less than the Government of India is backing them. Small savings instruments are an umbrella term used to describe savings instruments that were once available predominantly at the post office. Over the years, some of these also became available at the bank, but the funda­ mental structure remained the same—these instruments come with a guaranteed fixed return with the investments available for a finite period.

These are basically depos­ its in which you put money and it earns an interest that is paid out when the tenure ends. There was a time not too long ago when the returns from these instruments were attractive and one could cre­ate future income streams that could be used as retire­ment income or savings that could help fund children’s ed­ucation and so on. While the interest rates on small savings have been on a decline for about two decades now, the real change started in 2011, when it got linked to govern­ment securities (G­secs) yields with similar maturity in the preceding year.

Since 2011, interest rates on small savings have fluctuated, but the real twist occurred in 2017, when the government decided to review the interest rates on these schemes at the beginning of each quarter. Often, rates went unchanged for several quarters, but there have been instances when interest rates have changed every quarter as well (see