The government has held interest rates on small savings schemes unchanged for October-December 2020 even as banks have been on a rate-cutting spree, following the covid-19 crisis.
The State Bank of India (SBI) did its most recent cut on 10 September, reducing the one-year fixed deposit (FD) rate to 4.9% from 5.1%. HDFC Bank had last reduced its rates last month. The one-year FD in HDFC Bank now yields 5.1% and in ICICI Bank 5%. The same one-year FD with Post Office gives 5.5%.
The gap between bank FDs and Post Office FDs, which are part of the small savings schemes is wider in the five-year bucket. Here, the SBI FD gives 5.4%, HDFC Bank FD gives 5.5% (for five years and one day) and ICICI FD gives 5.5%.
This compares with 6.7% on a Post Office 5-year deposit and 6.8% on a five-year National Savings Certificate. The Public Provident Fund (PPF), which is not strictly comparable with FDs due to its long tenure of 15 years, is giving a return of 7.1%.
Banks offer rates that are 0.5% higher for senior citizens, however, such investors can access the five-year Senior Citizens Savings Scheme (SCSS) at the Post Office which offers 7.4%. The SCSS has a term of five years, which can be extended by another three years.
“If your bank FDs are close to maturity, you can gain higher returns by making the new FD at the Post Office. Post Office FDs are guaranteed by the government. The tax treatment is also the same as bank FDs. However, you may not get the same level of net banking and bill payment services for Post Office accounts,” said Amol Joshi, founder, Plan Rupee Investment Services.
There are also more rigid conditions for premature termination of the FD. Post Office FDs cannot be prematurely terminated in the first six months. If terminated between the first 6-12 months, you only get the interest as a Post Office savings account, which is at 4%.
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