Government Small Savings Schemes: Know Which One Is Suitable For You

Most of us invest in some kind of small savings scheme with an aim to accumulate a good amount of money, which we would have otherwise spent in meeting our daily chores. And when the deposited money matures, we put it to some use such as house construction, buying household items, for children's higher education or their marriage. These government-backed schemes offer safe and attractive investment options to the public and mobilises resources for development projects in the country. Let's take a deep dive into these schemes.

What are small savings schemes?

The government has introduced a range of investment vehicles for people who prefer to invest small amounts over a period of time as they earn, such as Public Provident Fund, Senior Citizens Savings Scheme, Post Office Recurring Deposit and the Sukanya Samriddhi Scheme. They are popularly known as small savings schemes.

How do they operate?

The money deposited in these schemes by individuals is directly sent to the government and deposited in the National Small Savings Fund (NSSF). The depositors get an assured interest on their money. The interest rates are calculated on a quarterly basis and reviewed periodically by the Finance Ministry.

Why are they important for you?

These schemes guarantee good returns with minimal risk and volatility. They can be opened in a variety of ways and start with – monthly, quarterly, half-yearly and yearly schemes. Some of these schemes also are tax-saving instruments.

National Savings Certificate

NSC is a fixed-income investment scheme suitable for small and medium-income investors to save tax under Section 80C of the Income Tax Act, 1961, while earning returns. You can buy an NSC with a minimum deposit of Rs 100 at the nearest post office. It comes with a lock-in period of 5 years.

Senior Citizen Saving Schemes

A government-backed retirement benefits scheme, also known as Post Office savings schemes, which allows senior citizens resident in India to invest a lump sum, individually or jointly, in single payment and get regular income along with tax benefits. The maximum amount that can be deposited in the account is Rs.15 lakh.

Post Office Recurring Deposit

The tenure is fixed for five years. You can open an account by agreeing to pay a fixed monthly deposit starting from Rs 100 and earn interest at 5.8 per cent per annum. The interest is compounded quarterly. This scheme also has a provision for loan of up to 50 per cent against the deposit after completing 12 instalments without defaulting.

Sukanya Samriddhi Scheme

Dedicated to the financial well-being of the girl child, the account is opened and operated by parents or guardians for girl children below the age of 10 years. The minimum deposit required is Rs 250 and the maximum amount allowed is Rs 1.5 lakh per financial year. The current interest rate for this scheme is 7.6 per cent p.a. and it is compounded annually. The deposit can be made for a maximum of 15 years.

Public Provident Fund

This scheme is preferred by salaried individuals as it offers income tax deductions up to Rs 1.5 lakh per financial year. The minimum deposit requirement is Rs 500 and the amount can go up to Rs 1.5 lakh. The tenure of the account is for 15 years but the account can be kept active by paying only Rs 500 per year. The interest rate (currently 7.1 per cent) is compounded yearly and interest is tax-free.