Small savings schemes are government-run savings accounts that cater to the needs of Indian citizens. The good part about them is that they are flexible, have fewer risks, and guarantee optimum returns.
Continue reading this article to learn about small savings schemes, their benefits, implementation, and interest rates.
List of savings schemes
There are several small savings schemes (including Indian post office saving schemes) supported by the Government of India. These are listed below:
- Post Office Savings Account
- Post Office Monthly Income Scheme (POMIS)
- Post Office Time Deposit
- Kisan Vikas Patra (KVP)
- Public Provident Fund (PPF)
- Sukanya Samriddhi Yojana
- National Savings Certificates (NSC)
- Senior Citizens Saving Scheme (SCSS)
Let us understand each of them one by one.
Post Office Savings Account
Post office savings accounts are similar to bank savings accounts, but they are opened in the post office and apply to one application per account, including the minor. Here is an overview of what you should know:
- Interest rate: 4% (taxable)
- Minimum deposit amount: Rs. 500
- Deduction on the principal amount: No
- Tax on interest: Yes
Post Office Recurring Deposit Account
This small savings scheme earns interest that is compounded quarterly to incur higher returns over time. Here is an overview:
- Interest rate: 6.7%
- Tenure: 5 years (extendable to 10 years)
- Minimum investment: Rs. 100
- Maximum investment: No upper limit
- Deduction on the principal amount: No
- Tax on interest: Yes
Post Office Monthly Income Scheme (POMIS)
Unlike other small savings schemes, the Post Office Monthly Income Scheme generates monthly interest. It is possible to open multiple accounts if their total investment amounts do not exceed Rs. 9 lakh.
Besides, you can withdraw the amount before the lock-in period, although a penalty of 2% of the deposit will be charged within 1 to 3 years and 1% after 3 to 5 years. Here is an overview:
- Interest rate: 7.4%
- Tenure: 5 years
- Minimum investment: Rs. 1,000
- Maximum investment: Rs. 9 lakh (Rs. 15 lakh for a joint account)
- Tax on interest: Yes
Post Office Time Deposit
A post office time deposit is a fixed deposit that offers tax-saving benefits up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961.
The interest rates increase with the investment time, as described in this table:
Time |
Interest Rate |
1 Year |
6.9% |
2 Year |
7.0% |
3 Year |
7.1% |
5 Years |
7.5% |
- Minimum investment: Rs. 1,000
- Maximum investment: None
- Deduction on the principal amount: No (except tax-saver deposit with the post office).
- Tax on interest: Yes
Kisan Vikas Patra (KVP)
The ‘Kisan Vikas Patra’ was initially launched as a small saving scheme certificate to encourage farmers to save for the long term; however, the scheme is now open to all Indian citizens over 18. Here is an overview:
- Interest rate: 7.5% compounded annually
- Tenure: 115 months
- Minimum investment: Rs. 1,000
- Maximum investment: multiples of Rs. 1,000 (no limit)
- Deduction on the principal amount: No
- Tax on interest: Yes
Public Provident Fund (PPF)
The Public Provident Fund (PPF) is the most common small savings scheme with a tenure of 15 years, extendable in the form of a block of 5 years.
You can open a PPF account at any bank or post office, and the loan facility is available from the third year on. Here is an overview:
- Interest rate: 7.1% for April to June 2024.
- Tenure: Minimum 15 years (extendable indefinitely)
- Minimum investment: Rs. 500 per year
- Maximum investment: Rs. 1.5 lakh per year\
- Deduction on the principal amount: Yes
- Tax on interest: No
Sukanya Samriddhi Yojana
The scheme aims to support girls under the age of 10. It matures 21 years after opening or at the time of marriage (whichever is earlier). Moreover, you can withdraw 50% of the amount if your girl child reaches 18. Here is an overview:
- Interest rate: 8.2%
- Tenure: 21 years
- Minimum investment: Rs. 250/year
- Maximum investment: Rs. 1.5 lakh/year
- Deduction on the principal amount: Yes
- Tax on interest: No
National Savings Certificates (NSC)
The National Savings Certificate does not have a premature withdrawal facility, unlike other small national saving schemes. The interest you earn after five years (the maturity period) can be used to avail yourself of a loan, making it among the popular saving scheme options. Here is an overview:
- Interest rate: 7.7%
- Tenure: 5 years
- Minimum investment: Rs. 1,000
- Maximum investment: None
- Deduction on the principal amount: Yes
- Tax on interest: No
Equity-Linked Savings Scheme (ELSS)
The equity-linked saving scheme (ELSS) is a mutual fund type with the shortest lock-in period of all the others we have mentioned. It offers high potential returns through stocks and benefits from compounding with a minimum of 80% investment in equity and equity-related instruments. Here is a bit of an overview:
- Interest rate: dependent on ELSS fund performance
- Minimum investment: Rs. 500 (varies for ELSS funds)
- Maximum investment: None
- Deduction on the principal amount: Yes
- Tax on interest: Yes (Taxable at 10% after Rs. 1 lakh)
NPS (National Pension Scheme)
The National Pension Scheme is a retirement plan where an individual can secure their future by saving money, which is given along with the accumulated interest when they turn 60. Here is a bit of an overview:
- Interest rate: Depends on the pension fund returns (usually 9-12%)
- Minimum investment: Rs. 1,000 per year
- Maximum investment: None
- Deduction on the principal amount: Yes
- Tax on interest: No (however, the maturity amount is partially taxable)
Tax-Saving FDs
A tax-saving FD is an ideal savings scheme for those seeking tax benefits and assured growth over time. However, the interest earned is taxable at your income tax slab rate. Here is an overview of this scheme:
- Interest rate: 6% to 8.25% (varies from bank to bank)
- Tenure: 5-10 years
- Minimum investment: Rs. 1,000
- Maximum investment: None
- Deduction on the principal amount: Yes
- Tax on interest: Yes
Senior Citizens Saving Scheme (SCSS)
The Senior Citizen Savings Scheme is an excellent way for retirees above 60 (50 years for retired defense personnel) to grow their savings. It comes with flexible investments and tax benefits up to Rs. 1.5 lakh (Section 80C of the Income Tax Act, 1961). Here is an overview:
- Interest rate: 8.2%
- Tenure: 5 years
- Minimum investment: Rs. 1,000
- Maximum investment: Rs. 30 lakh
- Deduction on the principal amount: Yes
- Tax on interest: Yes
Conclusion
Small savings schemes are ideated to offer safe and attractive investment options to the general public. They are a good option for those seeking secure returns considering economic volatility.
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