Small Saving Schemes of Post Office Are Giving Better Return than Simple Bank FDs

By Priyanka Sambhav

Interest rates of small saving schemes offered by post offices are giving bank FDs a tough competition. Did you know that there are nine small saving schemes run by the Indian Postal department? You can deposit your money and earn interest and it may surprise you that some of these schemes are paying higher interest than the bank fixed deposit. The interest of  State Bank of India’s (SBI ) one year Fd is at  4.90%, HDFC banks one year FD will earn 5.1% of interest and if you deposit this money in one-year time deposit of post office the investor will get an interest of 5.5%. If we compare this to a 5-year deposit then also the post office scheme is paying more. Five-year post office time deposit’s interest is 6.7% whereas SBI’s 5-year deposit is giving interest of 5.40% and ICICI bank is offering an interest of 5.35% on a 5-year deposit.

Small saving schemes of post offices are considered to be an instrument of risk-free steady returns as they carry the sovereign guarantee of the Indian Government. Many of the schemes provide tax benefits under Section 80C of the Income Tax Act. The interest rates on post office savings scheme are reviewed every quarter by the Government. The tenure and the type of scheme will decide the kind of return you will earn. Giving you a brief description of the nine ways of investment through the post office.

1) Post Office Savings Bank Account (SB)

It is exactly like your bank savings account. The minimum amount for opening an account is Rs 500 and this is the minimum balance which needs to be maintained or you will be charged Rs 100 as account maintenance fee. As per the Section 80TTA of the Income Tax Act interest up to Rs 10,000 is exempted from tax but interest beyond this will be taxed. Post office will pay interest on your balance which is at present 4%per annum.

2) National Savings Recurring Deposit Account (RD)

In an RD you can deposit a fixed amount at regular intervals. The tenor of this RD is five years though the account gives the flexibility of making a partial withdrawal of 50%  after the completion of one year. The minimum amount of deposit is Rs 100 and above the minimum in multiple of 10. If deposits are not paid as per the prescribed day of the month a default of Rs 1 for every  Rs 100 is charged. The present rate of interest as decided on 1st April 2020 is 5.8%(compounded quarterly). Joint accounts by two adult individuals and multiple accounts can be opened. Minor above the age of 10 can have an RD account on his/her name. Income earned on RD is taxed as per the individual tax slab.

3) National Savings Time Deposit Account (TD)

National Savings Time deposit is a fixed deposit with a fixed tenure and the interest is decided by the time length of your investment. The interest rate at this present time is the same for 1-3 year long deposits. TD done for  1,2,3 years will earn an interest of 5.5% whereas if you extend the tenure and keep your deposit for 5 years then you will receive an interest of 6.7%. A Time Deposit account can be opened with a minimum amount of Rs 1000. If TD Account is closed prematurely, then you may get less interest on your money. If closed after 6 months and before one year then the interest rate of the savings account will be applicable. If a 2/3/5 year TD account is closed after one year, then you will get 2% less than the promised interest. After attaining maturity if you want you can extend the tenure of this account for the same period as its earlier maturity.

4) Post Office Monthly Income Scheme( MIS)

An MIS account can be opened with a minimum deposit of Rs 1000, and one can deposit maximum Rs 4.5 Lakh in one year. In case of a joint account, Rs 9 lakh a year can be deposited. The interest rate on MIS is 6.6% payable monthly with a maturity period of 5 years. The scheme allows a withdrawal after 1 year. However, there will be a penalty of 2% on deposit if withdrawn between 1-3 years and 1% penalty on withdrawals after 3 years.

5) Senior Citizen Saving Scheme

This scheme is specially made for senior citizens and enables them to park their retirement benefit to earn handsome interest from it. People above the age of 60 or someone who has taken voluntary retirement can also open this account but the condition is that they need to open this account within a month of receiving the retirement benefit. The amount deposited can not cross the value of corpus received on retirement. Maximum limit of investment allowed is Rs 15 lakh. Current rate of interest on SCSS is 7.4% paid on a quarterly basis. The lock-in period of this investment is 5 years but premature withdrawals of deposits with penalty is allowed. If an account is closed even without completing a year, then no interest is paid. If you withdraw the deposit after  1 year then 1.2% is deducted from the principal amount, and if you withdraw after 2 years 1%  is deducted from the principal amount.

6) Public Provident Fund(PPF)

 PPF accounts allow you to deposit a minimum of Rs 500 in a year or maximum up to Rs 1.5 lakh. A PPF account has to be maintained for 15 years. This will earn compound interest. Currently, the interest offered on PPF is 7.1%.  You can open this account for minors also, but the overall amount that you can deposit after combining the balance of multiple accounts can’t cross the maximum limit of Rs 1.5 lakh. Partial withdrawal of funds is allowed only after completion of 5 years. If you want to close the account before maturity, the premature closure is also allowed only after completion of 5 years that too on specific grounds of serious health condition or for education. After the maturity of 15 years, it can be extended in blocks of 5 years. PPF deposit is eligible for tax deduction under Section 80C of The Income Tax Act.

7) Sukanya Samriddhi Account (SSA)

This scheme allows the parents to open an account in the name of a girl child below the age of 10 years. This account is maintained by parents till the time the girl attains 18 years of age. SSA can be opened for two daughters in a family. The minimum amount that you can deposit is Rs 250, and the maximum deposit could be of Rs 1.5 lakh. If a minimum deposit of Rs 250 is not made in a financial year, then the account will become a default account so for the continuity of account, it’s important that you make the minimum payment every year. One has to invest for 15 years from the date of account opening and after 15 years the account will continue to earn interest till maturity. Account matures after 21 years or upon the marriage of the girl child after she turns 18. The interest is calculated every quarter and deposited at the end of the financial year. At present SSA is getting an interest of 7.6% per annum.

8) National Saving Certificate (NSC)

The NSC is an investment with a maturity of  5 years. There is no maximum limit on how much can you deposit, but a minimum of Rs 1000 is required. The NSC’s rate of interest is 6.8% annually composed half-yearly but payable at maturity.

9) Kisan Vikas Patra (KVP)

The USP of Kisan Vikas Patra is that the invested amount doubles every 124 months(10 year & 4 months). You will earn an annual return on your deposit at 6.9%. Minimum investment of Rs 1000 is must, and there is no maximum limit.

This chart will give you a quick understanding of the income tax benefit and the present interest rate of all the 9 Post Office schemes.