When the repo rate decreases, banks reduce the interest rate of other loans including home loans. They also reduce the interest rate of fixed deposits. This situation is being seen right now. Due to this, investors are a little confused
RBI has started reducing the interest rate. This has affected the interest rate of fixed deposit schemes of banks. When the repo rate decreases, banks reduce the interest rate of other loans including home loans. They also reduce the interest rate of fixed deposits. This situation is being seen right now. Due to this, investors are a little confused. They are not able to understand whether they should invest in the FD scheme of banks or invest money in small savings scheme.
Bank FD has been a favorite investment option for a long time
For investors who do not take risk for a long time, the bank’s FD scheme has been the first choice. The special thing about FD is that it gives a pre-determined return. If needed, money can be withdrawn before maturity. These are also considered good in terms of investment security. On the other hand, small savings schemes are guaranteed by the government. The post-tax returns from PPF, NSC, Senior Citizens Savings Scheme (SCSS) and Post Office Monthly Income Scheme (POMIS) are attractive.
Returns from bank FDs are within the tax net
The interest rate of bank FD schemes may vary from bank to bank. Till recently, banks were offering 6.5 to 7.5 percent interest on their FDs. It has to be kept in mind that the interest on FDs comes under the tax net. Tax has to be paid on it according to the taxpayers’ slab. For taxpayers falling in higher slabs, the returns reduce significantly. This can be understood by an example. If a person falls in the 30 percent tax slab, then after paying tax on an FD with 7.5 percent interest, his return will be only 2.5 percent.
Annual interest rate on PPF is 7.1 percent
The government announces the interest rate of Small Savings Scheme every quarter. But, generally, there is no change in interest rates for a long time. Currently, PPF gives a tax-free return of 7.1 percent annually. Investment in this also provides tax deduction under section 80C. The annual interest in Senior Citizens Scheme is 8.2 percent. Its payment is made every quarter. The interest rate in NSC is 7.7 percent. It gets accumulated every year. Then on maturity, both the principal and interest are received.
Both are better in terms of security
In terms of security, there is not much difference between the two. But, the government guarantees the Small Savings Scheme. On the other hand, only a deposit of up to Rs 5 lakh in the bank is considered secure. The reason for this is the guidelines of DICGC. This means that if the bank goes bankrupt due to any reason, the customers are compensated up to Rs 5 lakh by the banks. Even if a customer had a lot of money in FD, he will be able to get back only Rs 5 lakh.
