Small Savings Schemes: After the cut in repo rate, many banks have reduced the interest rate on FD. This is causing loss to those investors who traditionally depend on FD for good returns. These include especially senior citizens. Know about 5 small savings schemes, which will give the benefit of tax exemption along with giving better returns than bank FD.
Small Savings Schemes: The government has not made any change in the interest rates of small savings schemes for the July-September 2025 quarter. In such a situation, schemes like Post Office Fixed Deposit (FD), National Savings Certificate (NSC), Public Provident Fund (PPF) and Senior Citizens Savings Scheme (SCSS) remain more attractive for investors than FDs of banks. In these, along with higher returns, one also gets the benefit of income tax exemption.
According to financial experts, while the interest on deposits in banks is decreasing due to repo rate cuts, small savings schemes are currently giving better and stable returns. Investing in these schemes can also benefit from a deduction of up to ₹ 1.5 lakh under Section 80C of the Income Tax Act, provided investors follow the old tax system.
Higher returns than bank FDs
According to Viral Bhatt, founder of financial advisory firm Money Mantra, ‘These schemes are also popular because the government guarantees them and interest rates do not fall suddenly. These schemes are an ideal option for small investors and senior citizens who prefer capital protection and fixed returns.’
National Savings Time Deposit (5 years)
This scheme is currently giving 7.5% annual interest, but this interest is fully taxable. One can start with a minimum investment of ₹1,000, to which further amounts can be added in multiples of ₹100. There is no maximum limit, but premature closure is not allowed. Premature closure after one year attracts interest rate two per cent less than the fixed rate.
2. Senior Citizens Savings Scheme (SCSS)
For people above 60 years of age (or retired government employees above 55 years of age), this scheme offers 8.2% annual interest, which is credited to the account every quarter. If the total interest from all SCSS accounts in a financial year exceeds ₹50,000, it will be taxable. Closing the account before one year does not earn any interest, and closing between one and two years attracts a 1.5% deduction in the principal. Closing between two and five years attracts a 1% deduction.
3. Public Provident Fund (PPF)
This scheme is ideal for investors who want long-term tax-free savings. Currently, it offers 7.1% annual tax-free interest. The minimum annual investment is ₹500 and the maximum is ₹1.5 lakh. If the account is not active for a minimum amount in any year, it is closed. It can be restarted later by paying a penalty of ₹50 and depositing the amount for that year. Its maturity is 15 years. However, loan and partial withdrawal facility is available.
4. Sukanya Samriddhi Yojana (SSA)
This scheme is for girls. It currently offers 8.2% tax-free interest. It can only be opened by parents or guardians for daughters below 10 years of age. The minimum investment is ₹250 and the maximum is ₹1.5 lakh per financial year. The account matures at 21 years or at the time of marriage of the girl at the age of 18. However, the account cannot be closed 1 month before and 3 months after the marriage. Partial withdrawal is possible only after the age of 18 or after passing 10th class. Premature closure is allowed after five years in case of serious illness or death of parent.
5. National Savings Certificate (NSC)
Investment in this scheme earns 7.7% interest, which is compounded every year and is paid in lump sum on maturity. Interest is taxable. The minimum investment is ₹1,000 and can be made in multiples of ₹100. There is no maximum investment limit, but the account cannot be closed before five years.
What should investors do?
Kalpesh Asher, Founder, Full Circle Financial Planners, advises that senior citizens should diversify with options like debt funds, FDs and government bonds. He said, ‘It is important to balance the portfolio considering every aspect like liquidity, security and regular income.’ Small savings schemes can do this job very well.
For investors who want fixed returns, tax exemption and capital protection, these schemes can prove to be better than bank FDs. However, the lock-in period and liquidity of every scheme is different. Therefore, before investing, it is important to choose the right option based on personal needs and risk capacity.
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