FD vs. Small Savings Scheme: While there are many investment options available in the market, many people still seek safe investment options. So, which option would be better for them: fixed deposits or small savings schemes?
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Even today, many investors prefer to avoid market risks. Such individuals choose to invest in fixed deposits or safe small savings schemes such as the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), Senior Citizen Savings Scheme (SCSS), Kisan Vikas Patra (KVP), etc. These schemes offer annual interest rates of 6.9% to 7.5%. The question now arises: which would be a better option for you, fixed deposits or small savings schemes?
Government Changes Interest Rates
The government has not made any changes to the interest rates on small savings schemes for the March quarter. Regarding fixed deposit interest rates, banks periodically revise them. Even after the RBI cut the repo rate in December, banks revised their interest rates.
Before investing in a small savings scheme or fixed deposit, keep these things in mind.
1. How long do you want to invest?
If you’re unsure whether to invest in fixed deposits or small savings schemes, the first thing you need to consider is the lock-in period. Small savings schemes can often offer higher returns than fixed deposits, but their lock-in period can be longer. Public Provident Funds, for example, have a lock-in period of 15 years.
2. What interest rate are you getting?
Whether you invest in fixed deposits or small savings schemes, the option that offers higher returns will be better. Banks offer 6% to 7% interest on fixed deposits annually. Interest rates on these small savings schemes can be even higher.
3. Investing in Fixed Deposits and Small Savings Schemes
You can include both small savings schemes and fixed deposits in your portfolio if you wish. This can also help you earn higher returns.
4. Income Tax
If you invest in fixed deposits, the interest earned will be taxable according to your tax slab. However, when you invest in small savings schemes, the interest earned is generally tax-free.
What to do?
If you only want to invest for the short term or you may need the money in a short period of time, you should invest in fixed deposits. However, if you are aiming for good returns over the long term and want to earn tax-free returns, small savings schemes will be better for you.
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