The post office small savings investments such as NSC, KVP, Time-deposits, Public Provident Fund, SCSS, Sukanya Samriddhi Yojana are hugely popular amongst the investors looking for safe and fixed returns.
The new year 2020 starts with good news for the investors. The government has decided not to cut the interest rate on the small savings schemes for the quarter January to March 2020. According to PTI, The government on Tuesday kept the interest rates on small savings schemes, including NSC and PPF, unchanged for the fourth quarter of 2019-20 despite moderating bank deposit rates.
At the beginning of each quarter of the year, the government sets the rate of interest applicable for the next quarter of the year. The rates were last revised in July to September quarter while the rates were kept constant in the October to December quarter. The post office small savings investments such as National Savings Certificates (NSC), KVP, Time-deposits, Public Provident Fund (PPF), Senior Citizens Savings Scheme (SCSS), Sukanya Samriddhi Yojana (SSY) etc. are hugely popular amongst the investors looking for safe and fixed returns.
It was felt that even though RBI has been cutting the repo rate, the interest rate on bank fixed deposits did not fall much. One of the reasons cited was the higher rates on post office schemes as they offered an alternative to bank FD schemes. With the PO rates not coming down in a hurry, the bank FD rates may not witness any further lowering of interest rates.
Most leading commercial banks are offering interest rate on bank fixed deposits in the range of 6.25 per cent per annum to 6.5 per cent per annum. For investors looking for safe and high returns, the post office schemes offer a relatively higher rate of interest of around 7.5 per cent and even higher.
Currently, the for tenure ranging from 1 to 10 years, the SBI 1-year FD is offering 6.25 per cent per annum. Some other bank FD interest rates ( 1 to 10 years) are – Axis bank FD is giving 6.4 per cent per annum to 6.5 per cent per annum, ICICI Bank FD is giving 6.2 per cent per annum to 6.4 per cent per annum, HDFC Bank FD is giving 6.3 per cent per annum to 6.4 per cent per annum across tenures.
PO interest rate: January to March 2020
In comparison, for the January to March 2020 quarter, the PO scheme such as Time Deposit is offering 6.9 per cent per annum on 1, 2, 3 tenure and on 5-year tenure, it is 7.7 per cent per annum. On PO MIS, the current rate of interest is 7.6 per cent per annum, while on KVP it is 7.6 per cent per annum (113) and on NSC it is 7.9 per cent per annum.
Even though the government has been fixing the interest rates on the small savings on a quarterly basis based on the yields of the government securities (G-Sec) of similar maturities, in the case of NSC, KVP, Time deposits, Senior Citizens Savings Scheme (SCSS), the rate of interest remains fixed for the investor until maturity. However, for PPF and Sukanya Samriddhi Yojana (SSY), the interest rate will vary each quarter as decided by the government.
As the interest rate is looking to fall in the short to medium term, PO schemes appear attractive. However, predicting the rate of interest over the long term is a difficult task. Invest in PO schemes based on your risk profile and long term goals into the context. And, remember except PPF and SSY, the interest earned in all other PO investments is taxable.