Post offices across the country offer savings schemes provide guaranteed interest rates of up to 8.6%. Unlike mutual funds where returns are exposed to market fluctuations, returns from postal schemes are safe and remain fixed for the investment term.
Debt investors who are disappointed with defaults in debt funds may look for safer options to park their money. Current interest rates offered by post office savings schemes are high, and they offer the highest level of safety. There are no or a few other investment avenues providing the same level of security and higher interest rates. Moreover, interest rates offered on post office savings schemes are revised periodically keeping the inflation and investor’s interest in mind.
Post Office Saving Schemes: Which are best?
Post offices in India offers about nine different savings schemes. Here is a look at different small schemes offered by post office scheme.
Senior citizens above 60 years of age can invest in this scheme to earn a regular income. The interest earned under this scheme is payable quarterly. The scheme comes with a lock-in period of five years; however, pre-mature withdrawals are allowed for a penalty after completion of one year. The maximum amount can be invested in this scheme is capped at Rs. 15 lakhs. SCSS qualifies for tax deduction under Section 80C of the Income Tax Act, 1961.
SSY comes under the “Beti Bachao Beti Padhao” campaign started a few years back. The investment amount, the maturity amount and the interest earned under this scheme are exempted from tax. Parents or legal guardians can apply to open an account for a girl child. The maximum of two accounts can be opened for two different girl children. The maturity amount is payable once the girl attains 21 years of age. The penalty will be levied if the minimum amount is not deposited in a single financial year.
Public Provident Fund (PPF) is another popular scheme offered by post office scheme. PPF scheme has a lock-in period of 15 years; however, partial withdrawals are allowed from the 7th year.
NSC comes with a lock-in period of five years. You can invest in National Savings Certificate individually, jointly, or on behalf of a minor. NSC scheme qualifies for tax deduction under Section 80C. The interest is compounded annually, and it is not paid instead reinvested with the principal amount. The reinvested interest is also eligible to receive tax benefits under Section 80C, except for the final year.
Post Office Savings Account
You have to deposit a minimum of Rs. 20 to open Post Office Savings Account. You can open a savings account individually or on a joint basis. Even a minor above 10 years of age can open this account. Interest rates may change according to the post office scheme.
Post Office Monthly Income Scheme
The scheme offers monthly interest payment to depositors. Individual, joint account, and minors above 10 years of age can invest in this scheme. Post Office Monthly Income Scheme has a term of five years. The interest is generally auto-credited in your savings account at the same post office. You have an option to withdraw funds before maturity after completion of one year.
Post Office Time Deposit Scheme
Post office accepts term deposits, which are similar to bank term (fixed) deposits. You can invest money in time deposit for different terms ranging from 1,2,3, and 5 years. A minor above 10 years of age, can invest in a time deposit scheme. A five-year post office term deposit offers tax benefits under Section 80C of the Income Tax Act, 1961.
You can invest your money in Kisan Vikas Patra to double your invested amount in a specific period. The interest rate for KVP is reviewed quarterly. The interest rate and term in which is decided and reviewed so that the money gets doubled. The interest rate and investment term remain fixed for one quarter.
Post Office Recurring Deposit
You can open a five-year recurring deposit account with the post office to invest small fixed amount periodically. There is no limit on the number of accounts that can be opened. Rebate is offered on a deposit made for six months or more in advance of the due date. You can extend your recurring deposit account for another five years after attaining maturity.
These post office savings schemes offer up to 8.6% interest
Among several post office savings schemes, Senior Citizen Saving Scheme Account and Sukanya Samriddhi Yojana offer up to 8.6% interest. For the current quarter (started from July 1, 2019), an investment made under Senior Citizen Savings Scheme fetches a return of 8.6% on an annual basis while Sukanya Samriddhi Yojana offers 8.4% per annum.
Here are key things you must know about these two post office savings schemes.
- If you want to open Senior Citizen Savings Account with the post office, you are required to deposit a minimum of Rs. 1000 and can deposit up to Rs. 15 lakhs. The maturity period of SCSS is five years. You can operate more than one account individually or jointly with a spouse.
- You can open an account with a cash deposit of less than Rs. 1 lakh, and via cheque payments, you can invest Rs. 1 lakh and above. Individuals above 60 years of age are eligible to open an account with SCSS.
- Sukanya Samriddhi Yojana account comes with full tax exemption in EEE (Exempt, Exempt, Exempt) category. The investment made up to Rs. 1.5 lakhs received a tax deduction. Moreover, the interest earned during the lock-in period is also exempted from tax.
Post office savings schemes are usually meant for those with low-risk profile. Investors who have already invested in small schemes should not alter them as they will fetch guaranteed returns on maturity, unlike debt fund. The primary aim of post office savings schemes is capital protection and that you receive a regular payout in the form of interest income. If you are looking to invest your money and have the low-risk appetite, you will not be able to digest the risk in debt funds or even in equity mutual funds.