Bank fixed deposits (FDs) and small savings schemes are two of India’s most popular low-risk investment options, especially among investors who value capital security. Small savings programs are managed by the Union government and come in a wide range of forms, in contrast to fixed deposits, which are offered by every bank in the nation.
These include the National Savings Scheme, Post Office Time Deposits, Kisan Vikas Patra, Sukanya Samriddhi Yojana, Senior Citizens Savings Scheme, and Public Provident Fund, among others. and have distinct investment objectives and terms.
All of the major banks have increased fixed deposit interest rates as a result of the RBI’s series of rate hikes. Except for PPF and Sukanya Samriddhi Yojana, the government has also raised interest rates on small savings plans consecutively over the past two quarters.
However, the returns provided by FDs and small savings plans are largely comparable when compared.
“On fixed deposits with terms of one to three years, the State Bank of India (SBI) offered a maximum interest rate of 5.10 percent in May 2022. It has gone up a lot since then, reaching 6.75 percent on December 14, 2022. As of December 14, 2022, HDFC Bank’s current interest rates for terms of one to five years are 6.50-7.0%. On the other hand, small savings plans can return as much as 8%. Rates range from 3.50 percent to 6% for terms shorter than five years. Abhinav Angirish, founder of Investonline.in, told CNBC-TV18.com, “The interest rates that small finance banks are offering on fixed deposits are extremely competitive.”
SBI and HDFC Bank’s FD interest rates are as follows:
State Bank of India (SBI)
| Tenures | Rates For Public | Rates for Senior Citizens |
| 7 days to 45 days | 3% | 3.5% |
| 46 days to 179 days | 4.5% | 5% |
| 180 days to 210 days | 5.25% | 5.75% |
| 211 days to less than 1 year | 5.75% | 6.25% |
| 1 year to less than 2 year | 6.75% | 7.25% |
| 2 years to less than 3 years | 6.75% | 7.25% |
| 3 years to less than 5 years | 6.25% | 6.75% |
| 5 years and up to 10 years | 6.25% | 7.25 |
HDFC Bank
| Tenire | Rate for public | Rate for senior citizens |
| 7 – 14 days | 3.00% | 3.50% |
| 15 – 29 days | 3.00% | 3.50% |
| 30 – 45 days | 3.50% | 4.00% |
| 46 – 60 days | 4.50% | 5.00% |
| 61 – 89 days | 4.50% | 5.00% |
| 90 days < = 6 months | 4.50% | 5.00% |
| 6 mnths 1 days <= 9 mnths | 5.75% | 6.25% |
| 9 mnths 1 day to < 1 year | 6.00% | 6.50% |
| 1 year to < 15 months | 6.50% | 7.00% |
| 15 months to < 18 months | 7.00% | 7.50% |
| 18 months to < 21 months | 7.00% | 7.50% |
| 21 months – 2 years | 7.00% | 7.50% |
| 2 years 1 day – 3 years | 7.00% | 7.50% |
| 3 year 1 day to – 5 years | 7.00% | 7.50% |
| 5 year 1 day – 10 years | 7.00% | 7.75%* |
Now that we have that out of the way, let’s examine the interest rates that are offered by small savings plans:
| Savings Scheme | Interest rate |
| Post Office Savings Account | 4.00% |
| Post Office Recurring Deposit | 5.80% |
| Post Office Monthly Income Scheme | 7.1% |
| Post Office Time Deposit (1 year) | 6.6% |
| Post Office Time Deposit (2 year) | 6.8% |
| Post Office Time Deposit (3 year) | 6.9% |
| Post Office Time Deposit (5 year)* | 7% |
| Kisan Vikas Patra (KVP) | 7.2% |
| Public Provident Fund (PPF) | 7.10% |
| Sukanya Samriddhi Yojana | 7.60% |
| National Savings Certificate | 6.80% |
| Senior Citizens’ Saving Scheme (SCSS) | 8% |
The rates of small savings plans are either comparable or slightly higher in some cases, as shown in the table. For instance, the interest rate on a 5-year fixed deposit, also known as a time deposit, for small savings plans is 7%. Additionally, it is 7% for HDFC. SBI, on the other hand, offers a rate of 6.25 percent for the same term.
Senior citizens can earn as much as 7.25 percent to 9.26 percent by selecting the appropriate bank fixed deposit. Angirish informed CNBC-TV18.com that the interest rates for savings accounts and five-year recurring deposits remain at 4% and 5.8%, respectively.
Beginning on January 1, the small savings scheme known as the Senior Citizens Savings Scheme (SCSS) will earn 8%. With a 120-month maturity, an investment in Kisan Vikas Patrika will earn 7.2% interest.
Which is the best investment?
It is essential to note that, after almost four years, the rates of small savings schemes have increased, providing bank FDs with strong competition for safe and stable investment options.
“The rising yields on government bonds, which are linked to the RBI’s recent repo rate hikes, are the catalyst for the rate hike. “When we consider the sovereign backing on the schemes, as well as attractive tax benefits, there is no doubt that the former emerge as the clear winner,” Raghvendra Nath, Managing Director of Ladderup Wealth Management, stated. “With the majority of the government-supported schemes witnessing a sharp surge in rates, the returns offered by small savings schemes are now at par with those of FDs backed by larger banks.”
Although it is true that some small finance banks offer FD returns of 9%, Nath added that these are still taxable and less secure than small savings plans.
“Small savings schemes is the best bet if the focus is on safe and stable returns along with tax benefits,” Nath suggested.
However, Angirish is of the opinion that small savings accounts lack the flexibility to be withdrawn at any time.
“Consequently, tax-friendly income and products such as tax-free bonds and debt mutual funds are options for individuals seeking flexibility, safety, and higher returns. According to what he shared with CNBC-TV18.com, “the yields on short-term debt mutual funds, such as low duration funds and ultra-short term duration funds have increased as a result of rate hikes, making them appear to be more appealing to investors.”
Bonds with shorter maturities are the preferred investment option for short-term debt mutual funds. They are able to reinvest their earnings at a rate that is higher than the standard investment rate as a result of this. Short-term debt funds, as opposed to fixed-deposit investments, may be an option for investors seeking faster returns on their investments.
If held for more than three years, investors can take advantage of the indexation benefit and pay tax on their profits at long-term capital gains (LTCG) rates, which are frequently lower than the investor’s income tax bracket. This is another advantage of investing in debt funds. Fixed Deposits do not qualify for this benefit.
