Small Savings Schemes: How to use them
In a recent announcement, the government has kept the interest rates of small-savings schemes unchanged for the first quarter of FY20. It will be the third consecutive quarter when the interest rate remains unchanged.
The government offers a basket of products under small savings schemes. From post office deposits to schemes for senior citizens, there are almost 10 different products you can choose from. The advantage of saving schemes is that they are government-backed, thereby, offering complete safety and security of your invested capital. Further, they are low on risk, but at the same time provide good returns.
Nonetheless, before committing any fund to any of these instruments you first need to understand your risk profile, investment horizon and asset allocation. If you are a conservative investor, you can go for the schemes that suit your needs. The investment in these instruments should be viewed not only from a returns perspective but also how tax-efficient they are. This means the return should be calculated based on your post-tax. For example, Kisan Vikas Patra (KVP) currently offers interest of 7.7 per cent on investment, however, does not offer any tax benefits like National Savings Certificate that offers tax benefit.
Following table shows the trend of the interest rate being offered by these schemes.
| | Interest Rate (%) Trends of Key Small Savings Schemes for the last 7 quarters | |
| Scheme | Apr-Jun, 2019 | Jan-Mar, 2019 | Oct-Dec, 2018 | Jul-Sep, 2018 | Apr-Jun, 2018 | Jan-Mar, 2018 | Oct-Dec, 2017 | Jul-Sep, 2017 |
| Post Office Recurring Deposit 5 year | 7.3 | 7.3 | 7.3 | 6.9 | 6.9 | 6.9 | 7.1 | 7.1 |
| Post Office Time Deposit 1 year | 7 | 7 | 7 | 6.6 | 6.6 | 6.6 | 6.8 | 6.8 |
| Post Office Time Deposit 2 year | 7 | 7 | 7 | 6.7 | 6.7 | 6.7 | 6.9 | 6.9 |
| Post Office Time Deposit 3 year | 7 | 7 | 7.2 | 6.9 | 6.9 | 6.9 | 7.1 | 7.1 |
| Post Office Time Deposit 5 year | 7.8 | 7.8 | 7.8 | 7.4 | 7.4 | 7.4 | 7.6 | 7.6 |
| Post Office Monthly Income Scheme | 7.7 | 7.7 | 7.7 | 7.3 | 7.3 | 7.3 | 7.5 | 7.5 |
| Public Provident Fund | 8 | 8 | 8 | 7.6 | 7.6 | 7.6 | 7.8 | 7.8 |
| Sukanya Samriddhi Yojana | 8.5 | 8.5 | 8.5 | 8.1 | 8.1 | 8.1 | 8.3 | 8.3 |
| Senior Citizen Savings Scheme | 8.7 | 8.7 | 8.7 | 8.3 | 8.3 | 8.3 | 8.3 | 8.3 |
| National Savings Certificate | 8 | 8 | 8 | 7.6 | 7.6 | 7.6 | 7.8 | 7.8 |
| Kisan Vikas Patra | 7.7 | 7.7 | 7.7 | 7.3 | 7.3 | 7.3 | 7.5 | 7.5 |
| Pradhan Mantri Vaya Vandana Yojana | 8 | - | - | - | - | - | - | - |