Post office schemes that beat bank interest rates

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Investors usually prefer to invest in safe yet higher return generating instruments. Government schemes come in handy out here as all small savings schemes provide attractive returns than bank fixed deposits. These small saving schemes offer assured returns to depositors and some of these schemes also provide tax benefits under section 80C of the Income Tax Act 1961 to the depositors.

A one-year fixed deposit (FD) with the State Bank of India now fetches 4.9%. Similar deposits in HDFC Bank and ICICI Bank fetch 4.9% and 4.9%, respectively. In comparison, one-year deposits with the post office, which are considered part of small savings schemes, yields 5.5%.

The gap between bank FDs and post office FDs is wider in the five-year bucket. Here, SBI offers 5.4%, HDFC Bank 5.5%, and ICICI Bank 5.35%. That compares with 6.8% on a post office time deposit for five years and 6.8% on a five-year National Savings Certificate.

In the near future, an increase in small savings plans will be encouraged by widening interest rate gaps between bank deposits and savings plans.

A look at the interest rates of top 3 banks and post office schemes:

According to financial advisor Pankaj Mathpal, “Post Office schemes are best for conservative investors who want guaranteed returns as they offer higher returns than just keeping in the bank as fixed deposits for a 5-year duration. However, you should be aware that these government post office scheme does not offer great liquidity. Hence, you should put your money only if you are sure that you will not need them in-between”. He suggested these top 3 office schemes for 5 years.

Post office time deposit: If you are looking at a saving instrument for a period of 5 years, then the post office time deposit will beat the bank interest rates of the large private and public sector banks. You get 5.5% maximum interest from banks while you get an interest rate of 6.8% on a time deposit of the post office. For any of the four tenures, 1, 2, 3, and 5 years, a Term Deposit (TD) can be generated.

Post Office Monthly Income Scheme (POMIS): It only provides investors with monthly interest payments. Individuals (whether individually or jointly) or minors aged 10 years or older can invest in the scheme for a tenure of 5 years. Interest earned will be auto-credited into the bank account of the holder at the same post office. After the completion of one year, the premature withdrawal facility can be utilized by paying the required penalty amount.

National Savings Certificate: The interest is around 6.8%. A sum of Rs 1,000/- grows to Rs 1389.49 after 5 years. NSC also gives you tax benefits under SEC 80C. However, the interest earned is not exempted from tax. An individual can open up to 3 joint accounts.