3 Best Small Savings Schemes That Offer Higher Returns Than Bank Deposits

Small savings plans are the most appealing to risk-averse investors during a stage when banks have decreased their deposit rates. Actually, the disparity between the five-year SBI fixed deposit rate and the five-year Post Office Time Deposit rate is 130 basis points. Based on the bond yield, the interest rates of small savings schemes are adjusted per quarter, which means that interest rates for the third quarter of the current fiscal year (2020-21) will be announced on 1 October 2020. In small savings schemes, such as five-year time deposits, National Savings Certificate, Monthly Income Scheme, Kisan Vikas Patra and Sukanya Samriddhi Account, which provide far higher rates compared to bank deposits, experts suggest risk-averse investors must invest. 

Post Office Monthly Income Scheme

The Monthly Income Scheme (MIS) in the post office defines a common small savings mechanism with an interest rate of 6.6 per cent. In a single-owned account, you can deposit up to Rs 4.5 lakh, and in a joint account, Rs 9 lakh for a maturity period of 5 years. The interest payout is done on a monthly basis which can be transferred into a savings account by auto credit. An investor can also activate a recurring deposit account where the five years of monthly interest will be deposited and also receive a higher interest rate of 5.8% on recurring deposit. The MIS may be prematurely accumulated at the discount after one year but before three years at the discount (deduction from the deposit of 2% of the deposit and after three years at the discount of 1% of the deposit). Although no tax is paid on the MIS at the origin, the individual will have to pay tax on the interest received at the effective tax slab of the individual.

National Savings Certificate

A 6.8% interest rate, accumulated annually but receivable at maturity, is given by the five-year National Savings Certificate. Under Section 80C, the deposits eligible for a tax deduction. Earlier, post offices released physically pre-printed NSC certificates. They are, nevertheless, released in passbooks as of July 2016. There is the lowest threshold of Rs 1,000 to contribute with no upper limit.

You can also procure NSC from banks in the public sector and a few banks in the private sector. As collateral for loans from banks or non-banking financial institutions, you must have the certificates. At the time of maturity, the corpus, the principal and interest received, is paid to the holder. Although no TDS is withheld, at your marginal rate, you must pay tax on the interest received.

Post Office Time Deposits

Such as bank deposits, post offices provide one, two, three and five-year fixed deposits options. Both single and joint holders can open a time deposit account with a minimum investment of Rs. 1000 with no upper threshold. No upper limit exists. The interest is due yearly but quarterly measured. It is possible to transfer the account from one post office to another and also one can open multiple accounts in any post office across India. Premature withdrawal is allowed in case of emergencies only after 6 months from the account opening date. The account holder will only get an interest rate of 4 per cent in case he / she exit from the Post Office Saving Accounts between six to 12 months from the date of opening of the deposit account. The five-year time deposit plan will also give you a benefit of tax deductions up to Rs 1.5 lakh a year under Section 80C of the Income Tax Act. The interest received is taxable according to one’s income tax slab. The interest rate on one, two and three-year time deposits is presently 5.5 per cent and it is 6.7 per cent for a five-year deposit. This interest rate is slightly higher than the one-year deposits and five-year deposit rate of SBI which is generally fetching a return of 5.1% and 5.4% respectively to the investors.

Informalnewz.com

 

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