Bank Fixed Deposit Rates are Falling! Are Post Office Saving Schemes a Better Option?

With FD rates of most banks falling, investors are looking out for smart alternative investment options. Read this article to know if post office savings scheme is a better option for investment.

Starting January 2019, the Reserve Bank of India has been evidently shrinking the repo rates many times. With the decline of interest rates, the effect directly is on bank fixed deposits rates and to an extent, even post-office small savings rates would decrease with time. For the month of July to September this year, the small savings rate of interest has also seen a considerable decline, as per the declaration of the government. State Bank of India, HDFC as well as Bank of Baroda have lately adhered to interest rate cut offs on Fixed Deposits.

Naturally, due to this interest rate recession, people who want to invest will investigate more for better investment options that would give them higher returns. For instance, corporate fixed deposits, NCD probably offers a greater interest rate. However, capital safety does not need to be ignored. The good news is that post office saving schemes have an independent and supreme guarantee on capital as well as the interest earned. Analogously, bank Fixed Deposits are also safe, although they are insured upto Rs. 1 lakh per bank, according to the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Firstly, the post office rate of interest was revised in the January- March 2019 quarter and was kept in effect until the April-June 2019 quarter. Also, as for the July-September 2019 quarter, the decline was only 0.1 percent.

In a span of 1 to 3 years, the Post Office Time Deposit (POTD) currently offers a higher rate of interest, which is 6.9 percent greater than some bank Fixed Deposits. With respect to a 5-year deposit, there is a difference of 125 basis points between Post Office Time Deposits and bank Fixed Deposits. Currently offering 7.7 percent per annum, the 5-year Post Office Time Deposit seems to be a much better yielding chance for investors. Since the 1st of August 2019, State Bank of India has been offering 6.5 percent. Whereas, Bank of Baroda is offering 6.45 percent and HDFC bank is offering 7 percent.

• Since Senior Citizens Saving Schemes (SCSS) have an interest rate of 8.6 percent, senior citizens may persistently invest in them.
• 5-year National Savings Certificate (NCS) offers a 7.9 percent rate, so taxpayers who may want to invest in fixed income tax saver can opt for this scheme.
• Public Provident Fund (PPF) continues to be a very strong long investment with a tax-free interest of 7.9 percent as well as annual compounding.
• Recently, the State Bank of India has reduced its interest rate since August 2019.
• For long duration or tenure, the decline is about 0.20 percent, while for short durations i.e. 179 days, the decline is evident as the interest rate falls by 50 to 75 basis points.
• The interest rates have been revised lately by Bank of Baroda, HDFC bank and Kotak bank as well.
• Fixed Deposits are well-suited for preservation of capital as well as for yielding a definite regular income. Fixed Deposits are not suitable for long term capital appreciation.
• The interest earned on Fixed Deposits is completely taxable in that year of the receipt.
• However, the post-tax returns are very low, due to inflation.
• Small Finance Banks are presently offering higher rate of returns during different tenures. Thus, if you see that main banks are

providing very low rate of interest, investing in Small Finance Banks such as Utkarsh Bank which is presently offering 8.50 percent on deposits for a duration between 1 year to 455 days. JANA Bank is currently offering 8 percent on deposits for a duration of 3 years to 5 years.

Now that you are clear about the falling interest rates on bank Fixed Deposits, below is a list of post office saving schemes that you can look into.

Unlike bank Fixed Deposits, Post Office Saving Schemes offer gains on investments that are free of all risks. It provides consistent and reliable returns. These post office saving schemes are available all across India, in all post-offices. The PPF is one of the most significant and evident schemes. This is found in public sector banks as well as every post-office.

• Post Office Time Deposit Account (TD)
• Post Office Monthly Income Scheme Account (MIS)
• Post Office Savings Account
• Five Years Post Office Recurring Deposit Account (RD)
• Public Provident Fund Account (for 15 years)
• Senior Citizens Savings Scheme (SCSS)
• Kisan Vikas Patra (KVP)
• National Savings Certificate (NSC)
• Sukanya Samriddhi Accounts (SSA)

• Simple Procedures: To begin investing in post office saving schemes, very minimal documentation is required.
• High Interest Rate: The rate of interests for all the post office saving schemes fall between a good rate of 4 percent to 9 percent.
• Untouched by Risks: Being government schemes, the post office saving schemes are extremely safe and free from risks.
• Long Term Investments: Many of the post office saving schemes are long term schemes that boost long term savings.
• Easy Investment: The post office saving schemes are very convenient as well as suitable for people wanting to invest from rural and even urban areas, because of their simple enrolment and further processes.
• Exemption from Tax: As per Section 80C of the Income Tax Act, post office saving schemes tax deduction on the amount deposited.

Post office saving schemes are easy to buy and organize. These schemes are government-made and are a hundred percent reliable and effective. Most of these post office saving schemes yield good returns as compared to bank savings and fixed deposit accounts, they are risk free as post office saving schemes are unaffected by inflation. The government has made investments secure by offering post office saving schemes to the people.

Recommended Read: Which is a Better Investment Gold or Fixed Deposit?