Small savings schemes still an attractive proposition

The revised rates are in contrast to bank deposit rates, which are already lower than post office term deposits or national savings certificates, that are expected to reduce in the coming months.

Published: 01st July 2019 10:16 AM  |   Last Updated: 01st July 2019 10:16 AM   |  A+A-

Savings, Piggy bank

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HYDERABAD : The government lowered interest rates by a mere 10 basis points or 0.1 per cent on small savings schemes, but they will continue to be attractive for conservative savers than other alternatives including bank deposits. The revised rates ranging between 6.9 and 8 per cent (excluding senior citizens’ rates) will be applicable till September.

This is in contrast to bank deposit rates - which are already lower than say post office term deposits or national savings certificates - that are expected to reduce in the coming months. Banks so far have been steadfast on not cutting rates on deposits fearing flight of customers to other products including small savings schemes. As it is, the growth in overall annual deposits has been going south, thanks to both increasing awareness about products such as mutual funds and equities, besides rising risk-appetite of customers. 

Last week, the Ministry of Finance reduced rates on all small savings schemes such as Public Provident Fund (PPF) and National Savings Certificate (NSC), which will bear an annual interest rate of 7.9 per cent as against the previous rate of 8 per cent. On the other hand, Kisan Vikas Patra will fetch 7.6 per cent with maturity of 113 months as against 7.7 per cent with maturity of 112 months.

Likewise, the girl child savings scheme Sukanya Samriddhi Account offers a revised rate of 8.4 per cent compared with 8.5 per cent, while term deposits of 1-3 years and above 5 years will fetch an interest of 6.9 and 7.7 per cent respectively. As for recurring deposits, they will bear an interest rate of 7.2 per cent. 

Lastly, the government retained savings deposits rate at 4 per cent, but this is lower than private lenders and even small finance banks, which offer much higher rates above 6 per cent to woo customers. Experts say, irrespective of the lower interest rates, small savings schemes will continue to be attractive for savers given the tax exemptions.

While NPS offers deduction of investments (including under Section 80C) up to `2 lakh, PPF continues to offer total exemption on the income earned throughout its tenure. Though investment in Kisan Vikas Patra doesn’t come under Section 80C deductions and is completely taxable, Tax Deducted at Source (TDS) is exempted from withdrawals after completion of tenure. On the upside, the scheme is completely exempted from Wealth Tax, making it attractive for investors. 

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