Top deposit picks from government's small savings schemes

Interest rate on post office deposits to remain unchanged, utilise the opportunity to lock in fund at high interest rates.

As a part of the quarterly exercise to review the prevailing interest rate of small saving schemes, the union government has decided not to change the existing interest rates. Recent demonetisation of currency notes of Rs 500 and Rs 1000 has flooded banks with low cost current and saving account deposits As a result almost all banks have reduced their interest rate on fixed deposits. Many people have been hardly hit by this sudden steep fall in deposit rates specially when it was a major source of their livelihood. Senior citizens are the most affected lot as they keep their savings in FD to arrange regular income flow for retirement life.

Post office schemes gives a ray of hope: In the falling rate environment the government's call to keep the interest rate of small savings schemes unchanged is a welcome relief. In past government used to review the interest rate of these schemes annually however now it has decided to do the review on quarterly basis starting from April 2016. Government has also linked the interest rate of these small savings schemes to the yield of government securities in the debt market. However, after the recent review as the government has decided not to change the interest rate for this current quarter therefore the interest rate on these schemes will remain unchanged at least till March 31, 2017.

Lock your funds at higher interest rate: During the demonetisation period almost all banks reduced their deposits rates. The biggest fall in interest rate of was seen for deposits of tenure of 2 years and above. Majority of the large banks are now giving an interest rate 7% or below for a deposit of 2 years and longer term. In case you have surpluses to park or have some existing FDs that are maturing soon and you wish to re-invest them for 2 years or longer tenure, you can use this three months window to park your deposits at relatively high interest rate offered by these small saving schemes from the post office.

Utilise these deposits for tax savings: Some of these schemes provide section 80C deduction benefit and would be handy for your to make investment for tax saving purpose. The schemes which provide you section 80 C benefit are National Saving Certificate (NSC), 5-years Tax Saver Time Deposit (TD), Public Provident Fund (PPF), Sukanya Samriddhi Account (SSA) and Senior Citizen Saving Scheme (SCSS). However, these schemes come with lock-in period which is 5 years for NSC, 5 years tax saver TD, and for SCSS, and for PPF it is 15 years while for SSA funds are locked in till the girl child attains the age of 21 years.  The table below will help you compare the interest rate for a relevant tenure and go for a suitable deposit.

One thing you can notice is that these small schemes are providing highest long term  interest against the banks that are offering their highest interest rate on deposit maximum up to1 year or upto 2 year tenures. So if you are looking to park your fund for longer than this then you have to go for these post office deposits. You should also make sure that you utilise these three months window as there is high likelihood of government reducing the interest rate from April this year.

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