The post office schemes carry the highest safety as they are backed with a sovereign guarantee on the amount invested.
Compared to the rate of interest in bank fixed deposits, the post office schemes may still appear attractive.
2021 is to begin with somewhat positive news for those who put their savings in fixed-income investments. The government has decided to keep the interest rate on small savings schemes unchanged for the quarter January to March 2021. The interest rate on PPF remains at 7.1 per cent per annum while for the Senior Citizen Savings Scheme, the interest rate is 7.4 per cent per annum. The 1-year time deposit, the rate of interest stands at 5.5 per cent.
Although the RBI has cut the repo rate by 115 basis points in 2020, the later half of the year did not see any rate cut, thus signalling a pause in the fall in interest rates.
The interest rates on post office savings schemes are revised by the government every quarter based on the yield on government bonds. Earlier, for the quarter of July to September and October to December 2020, the government had kept the interest rates on small saving schemes unchanged. It was only in the April to June 2020 quarter which saw a revision in the rates.
As there is no change in the rate of interest on 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., the PO schemes will continue to score over bank deposits as currently, the latter is providing interest of around 6 per cent across most tenures.
If at all there is a revision in interest rates, in any quarter of the financial years, it does not impact the existing investors in some of the small saving schemes. That is because the rates remain constant in some of the post office schemes for the entire tenure.
For the investor who invests in NSC, KVP, Time deposits, Senior Citizens Savings Scheme (SCSS), the rate of interest remains fixed until maturity. However, investors of PPF and Sukanya Samriddhi Yojana (SSY) see a revision in the rate as and when the government revises the rate at each quarter of any financial year.
Considering the current rate of interest on bank FD, the post office schemes may still appear attractive. Before investing, make sure about the tax liability of the interest that you will earn on PO schemes as some of them may have a taxable interest. Also, as most of them have a long duration, make sure you have liquid funds at your disposal before parking for the long term. Invest in them by linking to your long term needs and keeping asset allocation across equity and debt into consideration. Importantly, the post office schemes carry a sovereign guarantee on the entire amount invested and are, therefore, considered highly safe.