Conservative investors typically look for investment opportunities in safe investment instruments where they not they only earn assured returns but also claim income tax deductions. Some of the tax-saving instruments wherein investors can invest into include public provident fund (PPF), monthly income scheme (MIS), time deposit, senior citizens savings scheme (SCSS), Sukanya Samridhi Yojana Account (SSY) and National Savings Certificate (NSC).
Here we compare the returns offered by fixed deposits (FDs) vis-a-vis small savings schemes.
Bank FDs Vs. small savings schemes
I. Retuns on schemes: Most of the small savings schemes offer high returns in the range of 7-8 percent per annum whereas fixed deposits typically offer anywhere between 6-7 percent per annum.
National Savings Recurring Deposit offers 6.7 percent per annum
National Savings Time Deposit for 1 year is 6.9 percent, for two years, it is 7 percent, for three years, it is 7.1 percent and for five years, it is 7.5 percent. Tax deduction under 80C is given only when deposit is made for 5 years. National Savings monthly income account offers 7.4 percent per annum.
SCSS offers 8.2 percent annually, PPF’s interest rate is 7.1 percent, SSA offers 8.2 percent per annum, NSC gives 7.7 percent per annum and KVP offers 7.5 percent per annum.
Conversely, fixed deposits offer somewhere between 6-7 percent per annum. SBI offers 6.7 percent to general citizens on its 1-year fixed deposits, Union Bank of India offers 6.75 percent per annum, Bank of Baroda offers 6.85 percent, HDFC Bank offers 6.6 percent and ICICI Bank offers 6.7 percent. Meanwhile, senior citizens are entitled to receive an extra 50 basis points on these deposits.
(Interest on 1-year FD given to general citizens)
II. Tax saving: Investment made in tax-saving instruments such as post office schemes allows you to claim tax deduction under section 80C of Income Tax Act whereas no such deduction is given on investment in a fixed deposit (FD).
It is noteworthy that tax deduction is offered only under the old tax regime and only upto a maximum limit of ₹1.5 lakh per annum. The post office schemes which allow taxpayers to claim tax deduction include five-year time deposit, SCSS, PPF, SSA and NSC.
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