It’s like magic when your investment not only gives you a guaranteed higher return but reduces risk measures. This was something well enjoyed by banks a few years ago until government-owned Post Office deposit schemes entered with much more features. The current scenario of India for traditional schemes have changed drastically, in fact, there is a pool of options available where a citizen can park his or her money and still earn good returns on maturity. How did post schemes outrun banks in becoming best deposit plans? Well, everything is same such us both bank and post office schemes offer you guaranteed return at a specified tenure, have fixed investment amount, fixed interest rates, eliminate your risk and come with a guarantee that your money is saved and you will definitely take extra sum in form of interest at home. But the difference is, the post office scheme has gained popularity by offering the highest interest rates at the lowest investment of Rs 20. Banks offer a minimum amount of Rs 1000 as an investment in their fixed deposit schemes. Hence, the former has still an advantage over the latter!

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For instance, SBI’s fixed deposit below Rs 2 crore for tenures between 1 year to less than 5 years, help you earn interest rate of 6.80%. While 5-year deposit gives 6.85% interest rate. In the case of senior citizen, FDs have an interest rate of between 7.30% to 7.35% for 1 year up to 10  years tenure. 

Giving a slightly higher return than SBI, the private lender HDFC Bank gives 7.30% interest rate on FDs for 1 year tenure. For the same, a senior citizen enjoys 7.80% interest rate. Above two years but less than 3 years, a regular customer and senior earns 7.40% and 7.90% each on their FDs.  For 3 years to 5 years and above 5 years up to 8 years tenure, a customer gets 7.25% and 6.50% rate on FDs; while senior citizen receives 7.75% and 7% respectively. 

At ICICI Bank, between 1 year to less than 2 years, a customer earns 6.90% to 7.10% rate on their FD; while senior citizen receives 7.40% to 7.60%. Above 2 years upto 3 years, 7.50% is given to regular customer and 8% to senior citizen. As the tenure rises, the bank’s interest rate decelerates. For instance, ICICI Bank gives 7.25% and 7% rate on FDs for 3 years to 5 years and above 5 years up to 10 years. In the higher tenues, senior citizen enjoys 7.75% and 7.50% rate respectively. 

On the other hand, post office schemes rule the deposit investment pool by giving much higher return than banks. 1 year post office deposit helps a citizen earn up to 7% interest rate. The same is applicable for 2 year, 3 year time deposit. But in case of 5-year time deposit, the interest rises to 7.8%. For senior citizen, there is 5-year saving scheme which gives 8.7% rates. The interest are compounded quarterly for this form of savings. 

A post office saving schemes is defined as a list of products which guarantee reliability and risk-free returns on investment. There are some 1.54 lakh post offices across India, who offer these schemes. Apart from time deposits, the post office schemes also include savings account, public provident fund, national saving certificate, kisan vikas patra and sukanya samriddhi accounts. Notably, they all are doing well in their field. Just like banks, post office schemes also offer tax benefit of upto Rs 1.5 lakh under section 80C of Income Tax Act. 

Here’s how you benefit from post office schemes!

Firstly, they are easily available for application and are quite feasible for rural and urban investors. They help anyone who wants to hedge their risk in a portfolio where fixed decent returns can be earned. They are simplicity and availability stands them out from other investment tools.

The documentation needed for applying this scheme is easy just like banks. Such as electoral photo identity card, ration card, passport, driving license, Aadhaar card, PAN card and electricity bill among others. 

Apart from the majority of post office schemes eligible for tax exemption under section 80C, pools like PPF, SCSS, Sukanya Samriddhi also allows tax deduction earned on interest earned. 

Because they are backed by the government, the risk is almost minimal with competitive interest rates. They are not fixed at one form of investment, but are more diversified in nature. 

Earlier, rating agency ICRA highlighted that, small  saving schemes are categorised under three broad heads (i) postal deposits, comprising savings account, recurring deposits, time deposits of varying maturities and monthly income scheme (MIS); (ii) savings certificates, including National Small Savings Certificate (NSC) and Kisan Vikas Patra (KVP); and (iii) social security schemes such as public provident fund (PPF) and Senior Citizens‘ Savings Scheme (SCSS). These schemes provide an alternative avenue to saving in banks, often at interest rates that tend to be higher than bank deposits of comparable maturity. 

Therefore, ICRA highlights such schemes have at times been highlighted as a factor that hampers transmission of monetary easing to bank deposit and lending rates, particularly during periods of tight liquidity.

After keeping interest rates on post office schemes unchanged in first two quarters of FY19, the government hiked rates between 30-40 basis points in Q3FY19, however, once again decided to maintain status quo for Q4FY19. 

Here’s how you can open a Post Office account!

To open an account [Savings Bank(SB), Recurring Deposit(RD), Time Deposit(TD), Monthly Income Scheme(MIS) SB3, SB103 (pay-in-slip) and specimen signature slip for SB and TD are required.

For senior citizen accounts, separate forms are to be used. For SB account introduction is compulsory.

If it is a monthly deposit, then it should be credited on any day of that month. At maximum 4 defaults are allowed.