Tag: post office

Lock into the Post-Office Senior Citizens Savings Scheme

Personal Finance

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For senior citizens looking for the safest fixed income option with a regular pay out, the Post-Office Senior Citizens Saving Scheme (SCSS) is a good bet at 7.4 per cent. The scheme comes with a lock-in period of five years and allows seniors above 60 to deposit up to ₹15 lakh. Leading banks such as SBI and HDFC Bank — considered safe — are offering seniors interest of 5.8-6.2 per cent per annum on deposits of similar tenure.

Though the current interest rate offered on the PM Vaya Vandhana Yojana is the same 7.4 per cent as that of SCSS, the policy term of ten years for PMVVY is a drawback. Today, we may be closer to the bottom in the rate cycle. But don’t lose sleep over whether locking into the investment for longer tenure could result in opportunity loss if the rates start moving up. The current premium for SCSS returns over leading banks is at least 120 basis points. So it may take quite sometime for FDs to catch up. Besides, SCSS allows pre-mature withdrawal with a penalty of 1 per cent after two years, in case you want to move out.

Investment and interest from SCSS is eligible for tax benefits under sec 80C and 80 TTB (up to ₹ 50,000 interest per annum) respectively, which sweeten the deal.

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Which are the best small savings schemes

Personal Finance

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The government’s double-take on interest rates on small savings schemes raised eyebrows last week. After the initial cuts, the interest rates on these schemes for the April -June 2021 quarter were restored to FY20 levels (all quarters). What are the attractive pockets in these schemes for investors below 60 years of age?

NSC a decent bet

Interest rates are at a bottom now and are likely to go up in the next year or so. But, one cannot predict the exact timeline. If the circular on the new small savings rates issued on March 31 (withdrawn later) is any indication, the NSC interest rate may go down further, before moving up. Hence, for conservative investors to whom the sovereign guarantee offered by the post office schemes gives peace of mind, the NSC is a good bet.

At 6.8 per cent, it offers a better return than similar tenure bank deposits that offer 5-6.5 per cent.

Importantly, if you are under the old tax regime, the tax benefits on initial investment of up to ₹1.5 lakh and on the interest when reinvested under 80C, will imply an even higher yield, which makes NSC more attractive.

Floating rate on PPF, SSY

The PPF is offering 7.1 per cent and the advantage is that one does not lock into a rate. The interest rate fixed for each quarter applies to the entire balance in your PPF account and not just the investment made in that quarter.

Thus, if the interest rates moves up, the interest accrued on PPF also goes up and vice-versa. The PPF also enjoys EEE taxation – 80C exemption on initial investment, and no tax on the interest accrued and the maturity proceeds.

There are hardly any comparable fixed income products with a 15-year tenure and thus it, stands out.

If you are a parent or guardian of a girl child below 10 years, the Sukanya Samriddhi Yojana should be your first port of call in fixed income. The interest rate offered (7.6 per cent per annum) is the highest amongst all small savings schemes.

The tenure can be a maximum of 15 years from date of opening or till the child turns 21. It matures when your child turns 21.

Similar to PPF, you don’t lock into the interest rate and you also enjoy EEE taxation. Under the new regime, there are no tax breaks (80C deduction) on contributions made to PPF/SSY.

However, the interest accrued and the maturity amount are tax-exempt.

 

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