Savings Schemes are savings products administered by the Government of India or public sector financial institutions. They have different rates, tax treatment and tenures as you will see below. However one common theme among all these small savings schemes is government backing which ensures the safety of your investment. The rates on these schemes are revised every quarter (3 months). In this article we give you the full list of small savings schemes in India and the benefits of each of them.
Types of Savings Schemes
Broadly, there are three types of saving schemes – those aimed at all Indians, those aimed at the girl child and those aimed at senior citizens. Each category has different features and eligibility rules.
a) Savings Schemes for all Indians
These schemes include those available from the post office such as post office savings account, post office monthly income schemes and post office recurring deposit as well as those available in banks and post offices. The latter types includes Public Provident Fund (PPF), National Savings Certificate (NSC) and Kisan Vikas Patra.
1) Post Office Savings Account: This account is like a savings account with a bank, except that it is held with a post office. Only one account can be opened with one post office and can be transferred from one post office to another. You can also open an account in the name of a minor. The interest rate is 4% and is fully taxable. However a deduction of Rs 10,000 per annum is available on your total savings account interest including post office savings interest under Section 80TTA of the Income Tax Act, 1961.
2) Post Office Recurring Deposit Account (PORD): In this account, you deposit a fixed amount every month and each installment compounds in value. The 5 year account offers an interest rate of 6.9% (Q2 FY 2018-19)that is compounded annually. The 5 year PORD interest rate for the 1st October to 31st December 2018 (Q3 FY 2018-19) period has been revised to 8.0%. The tenure for this account is fixed at 5 years which can be renewed and extended to 10 years. No upper limit of investment is fixed in this account. This scheme offers no tax rebate and the interest on it is fully taxable.
3) Post Office Term Deposit/Post Office Time Deposit: This is like a Bank Fixed Deposit (FD). The minimum amount required for a Post Office Time Deposit Accont (POTD) is Rs 200 and there is no maximum limit. The interest rates are as mentioned below :
|Tenure||Rate from 1st July to 30th Sept (%)||Rate from 1st Oct to 31st Dec (%)|
4) Post Office Monthly Income Scheme (POMIS): This account provides monthly interest against your deposit with the post office. The minimum deposit amount is Rs 1,500 and the maximum deposit is Rs 4.5 lakhs (Rs 9 lakhs for a joint account). The interest rate on offer for Q2 FY 18-19 is 7.3% and the Q3 FY 18-19 rate has been revised to 7.7%. Any number of such accounts may be opened in any post office subject to the maximum balance limit (after adding balances in all accounts). The term of the POMIS is 5 years. You can set up an ECS facility to automatically credit the monthly interest from POMIS to your savings account. You can prematurely encash it after one year of opening the account. The premature encashment penalty for such a termination is 2% of your deposit within 1-3 years. If you prematurely encash it after 3 years but before maturity at 5 years, the penalty is 1%.You can also make a 5 year tax-saving fixed deposit with the post office.
5) Public Provident Fund Account (PPF): The Public Provident Fund (PPF) has an interest rate of 7.6% (Q2 FY 18-19) and the Q3 FY 18-19 rate has been revised to 8.0%. It has a term of 15 years, which can be extended indefinitely in blocks of 5 years. The interest on the PPF is tax free and contributions to the PPF are tax deductible up to Rs 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961. You can open a PPF account with a bank or a post office. Some banks like ICICI and Axis also allow you to open PPF accounts online. You can read more about the PPF here.
6) Kisan Vikas Patra (KVP): KVP offers an interest rate of 7.3% compounded annually (as of Q2 FY 18-19) with revised rate of 7.7% applicable in Q3 FY 18-19. It can be purchased from any post office. The invested amount doubles every 118 months (9 years and 10 months) at the Q2 rate, while the maturity period will decrease to 112 months at the higher Q3 rate. The minimum amount for investing in KVP is Rs 1,000. Thereafter you can invest in multiples of Rs 1,000 with no upper limit. Premature encashment of the KVP Certificate is allowed 2.5 years after purchase. The KVP certificate can be held either by a single holder or as a joint holding between two individuals. It can also be purchased on behalf of a minor. This scheme offers no tax rebate on either contributions or interest earned.
7) National Savings Certificate (NSC): This certificate offers an interest rate of 7.6% (in Q2 FY 18-19) compounded annually but payable only at maturity. The revised NSC rate of 8.0% is applicable from Q3 FY 18-19 onwards. It can be purchased from any post office. The minimum investment is Rs 100 and there is no maximum limit. The tenure for this certificate is 5 years. The interest earned is deemed to be reinvested and eligible for tax deduction up to Rs 1.5 lakh under Section 80 C. The principal amount invested also counts towards the same tax deduction up to Rs 1.5 lakh. The current issue is called the NSC VIII Issue.
Savings Schemes for the Girl Child
The Government has set up certain small savings schemes aimed specifically at the girl child. The Sukanya Samriddhi Yojana is a savings account with a 21 year tenure which was launched in 2015. Parents can open Sukanya Samriddhi Accounts for girls aged 10 years or younger under the scheme
1) Sukanya Samriddhi Yojana: The Sukanya Samriddhi Yojana is a government savings vehicle created for the benefit of the girl child who is 10 years of age or younger. A Sukanya Samriddhi Account features an interest rate of 8.1% (Q2 FY 18-19) with the revised rate of 8.5% applicable in Q3 FY 18-19. The minimum annual investment is Rs 1,000 and the maximum is Rs 1.5 lakh. The account can be opened by a parent or legal guardian for a girl child. A maximum of two such accounts can be opened by a parent/legal guardian for two girls. The account matures 21 years after opening or on marriage of the girl child after she reaches the age of 18. A premature withdrawal of 50% of the account balance can be made after the girl crosses 18, even if she is not married.
Savings Schemes for Senior Citizens
Two major savings schemes cater specifically to senior citizens, those individuals who are aged 60 or above. These schemes – Senior Citizens Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY) offer higher rates of interest than prevailing FD rates. SCSS also offers a tax deduction for annual contributions up to Rs 1.5 lakh under Section 80 C.
1) Senior Citizens Saving Scheme (SCSS): The SCSS is open to individuals above the age of 60 and has an interest rate of 8.3% (Q2 FY 18-19) with higher rate of 8.7% applicable in Q3 FY 18-19. You can apply for an SCSS account at a bank or post office. The minimum investment is Rs 1,000 and maximum is Rs 15 lakh. The tenure of the SCSS is 5 years and can be extended for another 3 years. To extend the account, you have to give a request within 1 year of the original maturity of the account. The investment in the SCSS is tax deductible up to Rs 1.5 lakh per annum under Section 80 C but the interest on the SCSS is fully taxable. You can ask for premature closure after one year of opening the account. The premature closure penalty is 1.5% if closure is requested 1-2 years from account opening and 1% is closure is requested after 2 years.
2) Pradhan Mantri Vaya Vandana Yojana (PMVVY): This is essentially a 10 year fixed deposit with LIC (Life Insurance Corporation) although it is marketed as a pension. It is available to those who have crossed the age of 60 and has an interest rate of 8%. The minimum investment limit is Rs 1.5 lakh and the maximum limit is Rs 15 lakh. A Rs 1.5 lakh deposit will get you a pension of Rs 1,000 per month, for a period of 10 years. A 15 lakh deposit will get you a monthly pension of Rs 10,000 for 10 years. At the end of the tenure, your investment amount is returned to you. You can find a detailed table of PMVVY interest (called ‘pension amounts’) here.
Benefits of Savings Schemes
1) Fixed Returns: The returns on these schemes are fixed and declared beforehand. They are not market linked like government schemes.
2) Government Backing: These schemes are government backed and hence there is virtually no chance of default or loss of capital in them.
3) Tax: Some of these schemes have tax benefits. Contributions to PPF, NSC, Sukanya Samriddhi and SCSS are tax deductible under Section 80C. Interest on PPF and Sukanya Samriddhi Yojana is tax free. Interest on NSC is tax deductible under Section 80 C
4) Rates revised every quarter: The Government revises rates on small savings schemes every quarter. As a result, your investments will earn higher returns if interest rates rise in the economy.