Small Savings Plans 

  • For the January to March 2023 quarter, the Central Government raised interest rates on eight of the twelve small savings schemes by 20 to 110 basis points.
  • Small Savings Schemes are a collection of savings instruments managed by the central government with the goal of encouraging citizens of all ages to save regularly.
  • They are popular because they offer higher returns than bank fixed deposits, as well as sovereign guarantees and tax breaks.

How are they dealt with?

  • Since 2016, the Finance Ministry has reviewed quarterly the interest rates on small savings schemes.
  • The National Small Savings Fund collects all deposits received through various schemes.
  • The funds in the fund are used to finance the Centre’s fiscal deficit.

Different saving schemes

The schemes can be grouped under three heads –

  • Post office deposits
  • Savings certificates and
  • Social security schemes

(1) Post Office Deposits

  • This includes the savings deposit, recurring deposit, and time deposits with maturities of 1, 2, 3, and 5 years, as well as the monthly income account.
  • The savings account currently pays 4% interest per year and can be opened individually or jointly with a Rs 500 initial investment.
  • The recurring deposit, which pays 5.8% a year compounded quarterly, matures 60 months after it is opened.
  • It enables investors to save on a monthly basis with a minimum monthly deposit of Rs 100.
  • Investments in the 5-year time deposit up to Rs 1.5 lakh are also eligible for tax benefits under section 80C of the Income Tax Act.

(2) Savings Certificates

  • The National Savings Certificate and the Kisan Vikas Patra fall under this category.
  • The National Savings Certificate pays 6.8% annual interest upon maturity after 5 years. Every year, the interest earned is automatically reinvested into the scheme.
  • The NSC is also tax-deductible under Section 80C of the Internal Revenue Code.
  • The Kisan Vikas Patra, which is open to everyone, doubles your one-time investment after 124 months, resulting in a 6.9% compounded annual return.
  • The minimum investment is Rs 1000, and there is no maximum.

(3) Social security schemes

In the third head of social security schemes, there is Public Provident Fund, Sukanya Samriddhi Account, and Senior Citizens Savings Scheme.

Public Provident Fund

  • The Public Provident Fund is a popular way to save for long-term goals such as retirement.
  • It pays 7.1% per year and is tax deductible under Section 80C of the Income Tax Act.
  • When the account matures after 15 years, it can be extended in 5-year increments indefinitely.
  • At the time of withdrawal, the accumulated amount and interest earned are tax-free.

Sukanya Samriddhi Account

  • The Sukanya Samriddhi Account was established in 2015 as part of the Beti Bachao Beti Padhao campaign, specifically for girl children.
  • The account can be opened in the name of a female child under the age of ten.
  • The scheme guarantees a 7.6% annual return and is tax deductible under Section 80C of the Income Tax Act.
  • The deposit is valid for 21 years from the date of opening and a maximum of Rs 1.5 lakh can be invested per year.

Senior Citizen Savings Account

  • Finally, anyone over the age of 60 can open a five-year Senior Citizen Savings Account.
  • It has a 7.4% annual interest rate that is paid quarterly and is tax deductible under Section 80C.
  • These time-tested and safe modes of investment do not provide quick returns, but they are safer than market-linked schemes.
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