What is Small Savings Scheme?

Economists expect the Centre to raise the interest rates paid on small savings schemes for the July to September 2022 quarter.

Small Savings Schemes are a set of savings instruments managed by the central government with an aim to encourage citizens to save regularly irrespective of their age.
They are popular as they provide returns higher than bank fixed deposits, sovereign guarantee and tax benefits.

Since 2016, the Finance Ministry has been reviewing the interest rates on small savings schemes on a quarterly basis.
All deposits received under various schemes are pooled in the National Small Savings Fund.
The money in the fund is used by the Centre to finance its fiscal deficit.

The schemes can be grouped under three heads –

Under this we have the savings deposit, recurring deposit and time deposits with 1, 2, 3 and 5 year maturities and the monthly income account.
The savings account currently pays an interest of 4% per annum and can be opened individually or jointly with an initial investment of Rs 500.
The recurring deposit that pays 5.8% a year compounded quarterly matures after 60 months from the date of opening.
It allows investors to save on a monthly basis with a minimum deposit of Rs 100 per month.
Investments under the 5-year time deposit up to Rs 1.5 lakh further qualifies for benefit under section 80C of Income Tax Act.

Under this, we have the National Savings Certificate and the Kisan Vikas Patra.
The National Savings Certificate pays interest at a rate of 6.8% per annum upon maturity after 5 years. The interest that is earned is reinvested into the scheme every year automatically.
The NSC also qualifies for tax saving under Section 80C of the income tax act.
The Kisan Vikas Patra, which is open to everyone, doubles your one-time investment at the end of 124 months signifying a return of 6.9% compounded annually.
The minimum investment amount is Rs 1000 while there is no upper limit.

In the third head of social security schemes, there is Public Provident Fund, Sukanya Samriddhi Account and Senior Citizens Savings Scheme.

a. Public Provident Fund

The Public Provident Fund is a popular saving option for long term goals like retirement.
It pays 7.1% a year and qualifies for tax benefit under Section 80C of the Income Tax Act.
Upon maturity of the account after 15 years, it can be extended indefinitely in blocks of 5 years.
The accumulated amount and interest earned are exempt from tax at the time of withdrawal.

b. Sukanya Samriddhi Account

The Sukanya Samriddhi Account was launched in 2015 under the Beti Bachao Beti Padhao campaign exclusively for a girl child.
The account can be opened in the name of a girl child below the age of 10 years.
The scheme guarantees a return of 7.6% per annum and is eligible for tax benefit under Section 80C of the Income Tax Act.
The tenure of the deposit is 21 years from the date of opening of the account and a maximum of Rs 1.5 lakh can be invested in a year.

c. Senior Citizen Savings Account

And finally, the 5-year Senior Citizen Savings Account can be opened by anyone who is over 60 years to age.
It carries an interest of 7.4% per annum payable quarterly and qualifies for Section 80C tax benefit.
These time-tested and safe modes of investments don’t offer quick returns, but are safer when compared to market-linked schemes.

Join the Community