Bank fixed deposits (FDs) and small savings schemes are two of the most well-liked low-risk investment options available in India, particularly among investors who prefer the safety of their capital. Compared to fixed deposits, which are provided by every bank in the country, small saving schemes are managed by the Union government and come in a wide variety of forms.
These are Public Provident Fund, Post Office Time Deposits, National Savings Scheme, National Savings Certificate, Kisan Vikas Patra, Sukanya Samriddhi Yojana, Senior Citizens Savings Scheme, etc. and have different terms and conditions and investment goals.
After RBI's multiple repo rate hikes, all major banks have hiked interest rates on fixed deposits. Government has also
raised interest rates for small savings schemes consecutive in the last two quarters, except for PPF and Sukanya Samriddhi Yojana.
However, if we compare the two, the returns delivered by FDs and small savings schemes are mostly at par.
"In May of 2022, the
State Bank of India (SBI) offered a maximum interest rate of 5.10 percent on fixed deposits with terms of between one and three years. Since then, it has increased significantly, reaching 6.75 percent as of December 14, 2022. HDFC Bank's current interest rates for terms of one to five years are 6.50–7 percent, effective as of December 14, 2022. On the other hand, small savings schemes offer up to 8 percent return. For terms shorter than five years, rates range from 3.50 percent to 6 percent. The interest rates that small finance banks are offering on fixed deposits are extremely competitive," Abhinav Angirish, Founder of Investonline.in, while talking to
CNBC-TV18.com.Here's a look at FD interest rates of SBI and HDFC Bank:
| Tenures | Rates For Public | Rates for Senior Citizens |
| 7 days to 45 days | 3% | 3.5% |
| 46 days to 179 days | 4.5% | 5% |
| 180 days to 210 days | 5.25% | 5.75% |
| 211 days to less than 1 year | 5.75% | 6.25% |
| 1 year to less than 2 year | 6.75% | 7.25% |
| 2 years to less than 3 years | 6.75% | 7.25% |
| 3 years to less than 5 years | 6.25% | 6.75% |
| 5 years and up to 10 years | 6.25% | 7.25 |
HDFC Bank
| Tenire | Rate for public | Rate for senior citizens |
| 7 - 14 days | 3.00% | 3.50% |
| 15 - 29 days | 3.00% | 3.50% |
| 30 - 45 days | 3.50% | 4.00% |
| 46 - 60 days | 4.50% | 5.00% |
| 61 - 89 days | 4.50% | 5.00% |
| 90 days < = 6 months | 4.50% | 5.00% |
| 6 mnths 1 days <= 9 mnths | 5.75% | 6.25% |
| 9 mnths 1 day to < 1 year | 6.00% | 6.50% |
| 1 year to < 15 months | 6.50% | 7.00% |
| 15 months to < 18 months | 7.00% | 7.50% |
| 18 months to < 21 months | 7.00% | 7.50% |
| 21 months - 2 years | 7.00% | 7.50% |
| 2 years 1 day - 3 years | 7.00% | 7.50% |
| 3 year 1 day to - 5 years | 7.00% | 7.50% |
| 5 year 1 day - 10 years | 7.00% | 7.75%* |
Now, let's take a look at interest rates offered by small savings schemes:
| Savings Scheme | Interest rate |
| Post Office Savings Account | 4.00% |
| Post Office Recurring Deposit | 5.80% |
| Post Office Monthly Income Scheme | 7.1% |
| Post Office Time Deposit (1 year) | 6.6% |
| Post Office Time Deposit (2 year) | 6.8% |
| Post Office Time Deposit (3 year) | 6.9% |
| Post Office Time Deposit (5 year)* | 7% |
| Kisan Vikas Patra (KVP) | 7.2% |
| Public Provident Fund (PPF) | 7.10% |
| Sukanya Samriddhi Yojana | 7.60% |
| National Savings Certificate | 6.80% |
| Senior Citizens’ Saving Scheme (SCSS) | 8% |
The table shows that rates of small saving schemes are either at par or marginally higher in some instances. For example, if we take a 5-year time deposit (also known as fixed deposit) in case of small savings schemes, the rate is 7 percent. Also, for HDFC, it's 7 percent. SBI, however, offers 6.25 percent rate on the same tenure.
As for senior citizens, they can choose the correct bank fixed deposit and even earn 7.25–9.26 percent. The interest rates for five-year recurring deposits continue to be 5.8 percent, while the rates for savings accounts continue to be 4 percent, Angirish told CNBC-TV18.com.
The Senior Citizens Savings Scheme (SCSS), which is a small savings scheme, earns 8 percent starting on January 1. An investment in Kisan Vikas Patrika with a maturity of 120 months will yield 7.2 percent in interest.
Which is better to invest?
It's important to note that the rates of small savings schemes have risen after a period of almost four years, and these now offer strong competition to bank FDs, especially when it comes to safe and stable investment options.
"The hike in rates comes on the back of the rising yields on government bonds, which are, in turn, linked to the recent repo rate hikes by the RBI. With most of the government-supported schemes witnessing a sharp surge in rates, the returns offered by small savings schemes are now at par with that of FDs backed by larger banks, and when we consider the sovereign backing on the schemes, as well as attractive tax benefits, there is no doubt that the former emerge as the clear winner," Raghvendra Nath, Managing Director of Ladderup Wealth Management, said.
While it is true that certain small finance banks are offering 9 percent returns on FDs, Nath added that these are still taxable by law and less safe than small savings schemes.
"If the focus is on safe and stable returns along with tax benefits, then small savings schemes is the best bet," Nath suggested.
On the other hand, Angirish thinks that small savings schemes do not offer flexibility to withdraw when the need arises.
"So, for those looking for flexibility and safety with higher returns, they can look at tax-friendly incomes and products such as tax-free bonds and debt mutual funds. As a result of rate hikes, the yields on short-term debt mutual funds such as low duration funds and ultra-short term duration funds have increased, making them appear more appealing to investors," he told CNBC-TV18.com.
Short term debt mutual funds choose to put their money into bonds with shorter maturities. Because of this, they are able to reinvest their proceeds at a rate that is higher than the standard rate of investment. Investors seeking higher returns on their money in the short term can consider short-term debt funds rather than fixed-deposits.
Another advantage of investing in debt funds is that if held for more than three years, investors can take advantage of the indexation benefit and pay tax on their profits at long-term capital gains (LTCG) rates, which are often lower than the investor's income tax bracket. This perk does not apply to Fixed Deposits.
First Published: Jan 5, 2023 6:55 PM IST
