Sukanya Samriddhi Yojana vs Fixed Deposit

Parents seeking secure investments to build a financial future for their daughters have two popular options: Sukanya Samriddhi Yojana (SSY) and fixed deposits (FDs). Both offer reliable returns, but they have key differences. Understanding these distinctions will help you make the best choice for your girl child's needs.

What is Sukanya Samriddhi Yojana

SSY is a small savings scheme introduced by the Indian government to help parents save for their daughter’s future financial requirements. Launched under the ‘Beti Bachao, Beti Padhao’ campaign, SSY aims to promote the welfare of the girl child, encouraging parents to save for her higher education and wedding expenses.

What is Fixed deposit?

Fixed deposits, on the other hand, are traditional investment avenues open to resident and non-resident Indians, seniors, and minors. Funds deposited into an FD account earn a fixed interest throughout the investment tenure. Moreover, FD interest rates tend to be higher than regular savings account rates.

Difference between Sukanya Samriddhi and fixed deposit

Depth analysis of Sukanya Samriddhi Yojana vs fixed deposit

While the key differences between SSY and FDs are clear from the above Sukanya Samriddhi vs. fixed deposit comparison, it is still essential to understand the nuances of these differences. We have covered the main differences between SSY and FDs in detail below:

1. Interest rates
   The central government revises SSY interest rates every quarter. Currently, the interest rate offered on Sukanya Samriddhi accounts is 8.2% (April to June 2024). In other words, unlike FDs, interest rates on SSY accounts are not fixed for the entire tenure. FD interest rates are determined by banks and financial institutions, depending on the investment tenure and amount. Senior citizens usually enjoy up to 0.50% higher interest rates than regular investors. This interest rate remains the same throughout the FD tenure.
2. Eligibility criteria
   SSY accounts can be opened by parents or legal guardians of a girl child below the age of 10. In other words, accounts can be opened for only female children below a certain age threshold. However, FDs can be opened by individuals above the age of 18 years, joint entities, and even minors (with parents/guardians overseeing the account).
3. Minimum and maximum investments
   For a Sukanya Samriddhi account, you can start investing with a nominal sum of Rs. 250. The maximum investment cap is set at Rs. 1.5 lakh per financial year. For FDs, the minimum deposit amount varies from one financial institution to the next. For instance, you can start a Bajaj Finance FD with a minimum deposit of Rs. 15,000.
4. Investment tenure
   The maturity date for SSY accounts is 21 years from the date of account opening or when the girl child gets married after attaining 18 years of age (whichever comes first). Fixed deposit accounts offer flexible investment tenures, generally ranging from 7 days up to 10 years. You can choose an investment tenure that best suits your investment goals and liquidity requirements.
5. Tax benefits
   Tax benefits are one of the most significant differentiation parameters in the Sukanya Samridhhi Yojana vs. fixed deposit analysis. SSY accounts fall under the EEE scheme (Exempt-Exempt-Exempt). In other words, SSY investments qualify for tax deductions of up to Rs. 1.5 lakh under Section 80(C), while the interest earned, and the maturity amount are also tax-free. Conversely, only tax-saving FDs qualify for tax deductions u/s 80(C). Additionally, interest earned from FD accounts is added to your total annual income and taxed as per the applicable income tax slab.
6. Premature withdrawals
   For SSY accounts, up to 50% of the saved corpus can be partially withdrawn after the child turns 18 to meet higher education or marriage expenses. Premature closure of SSY accounts is also permitted after 5 years only in case of the account holder/guardian’s untimely demise or a life-threatening illness diagnosis.

Banks and NBFCs allow premature withdrawal of Fixed Deposit. However, you have to pay a nominal penalty charge for such premature withdrawals. While this penalty charge varies from one financial institution to the next, it usually ranges from 0.5%-3% of the applicable interest rate.

To make the most of your FD investment, you can choose to park your funds in a Bajaj Finance FD and earn high interest rates of up to 8.65% p.a. Additionally, you can choose from flexible tenure and payout options to meet your investment goals and liquidity needs.

Conclusion

SSY and FDs don't have to be mutually exclusive. A combination of both can be a smart way to build a robust financial foundation for your girl child. SSY can provide the core, long-term growth, while FDs offer flexibility and potential liquidity.

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