SAVING
Post Office Savings Schemes Compared
The small savings schemes all carry a government-set rate and very little risk. What separates them is whether they pay you an income or grow your money, who can open them, and how long your money is tied up.
Income schemes and growth schemes
Two of these schemes pay interest out as it is earned: the Monthly Income Scheme every month and the Senior Citizens Savings Scheme every quarter. Your deposit stays the same and comes back at the end. The others keep the interest in the account so it compounds, and pay everything out at maturity.
That settles the first choice. If you need the money to live on now, the income schemes do that job. If you are saving for later, a growth scheme leaves you with more, because the interest keeps earning interest.
The government sets every rate and reviews it each quarter. For most of these schemes, the rate on your deposit is fixed on the day you invest. The examples below use recent rates, but check the current ones before you invest.
Monthly Income Scheme
You deposit a lump sum for five years and receive interest every month. At 7.4%, a ₹9 lakh deposit pays ₹5,550 a month. The interest is taxable, the deposit earns no tax deduction, and there is a cap on how much a single or joint account can hold. It suits someone who wants a predictable monthly addition to their income without touching the capital.
Senior Citizens Savings Scheme
SCSS is open to people aged 60 and over, and to some retired employees from 55. The deposit runs for five years, can be extended, and pays interest every quarter. At 8.2%, ₹15 lakh pays ₹30,750 a quarter, or ₹6,15,000 over the five years. The deposit counts towards section 80C under the old regime, and the interest is taxable, with TDS once it crosses a yearly threshold.
National Savings Certificate
NSC is a five-year certificate that compounds interest once a year and pays it all at maturity. At 7.7%, ₹1 lakh becomes ₹1,44,903. The investment counts towards 80C under the old regime, and so does the interest reinvested each year apart from the last. That interest is taxable, which is easy to forget because you do not receive it until the end.
Kisan Vikas Patra
KVP doubles your money over a fixed period that depends on the rate in force when you invest. At 7.5% a year that period is 115 months, so ₹1 lakh becomes ₹2 lakh in nine years and seven months. There is no 80C deduction and the gain is taxable. You can cash it in early after a minimum holding period, for less than the full doubled amount.
Sukanya Samriddhi Yojana
This account is for a girl under ten, opened by a parent or guardian. Deposits are made for the first 15 years and the account matures 21 years after it was opened. With ₹1.5 lakh deposited every year at 8.2%, and if that rate held throughout, the account would reach ₹71,82,119 from ₹22.5 lakh of deposits. Deposits count towards 80C under the old regime, and the interest and maturity amount are tax-free. Part of the balance can be withdrawn for her education once she turns 18.
Choosing between them
- For monthly income from savings you already have, the Monthly Income Scheme, or SCSS if you are old enough, since it has usually paid the higher rate.
- For a lump sum you will not need for five years, NSC if you claim 80C under the old regime, or KVP if you do not.
- For a daughter's education or marriage many years away, Sukanya Samriddhi, the only scheme here that is tax-free on the way out.
- For money you might need at short notice, none of them. Early withdrawal is either not allowed or costs you interest.
Tax changes the real return on every scheme here except Sukanya Samriddhi. If your income is taxed at 30% plus cess, a 7.7% rate on NSC is worth about 5.3% after tax, so compare these schemes with other options on the same after-tax basis. The calculators for MIS, SCSS, NSC, KVP and Sukanya Samriddhi show the payouts and maturity values for your own amount.