Will Investors Choose Post Office Savings Schemes Over Bank Fds Because Of Increased Interest Rates?
The recent hike in interest rates of post office small savings schemes has made them a viable mode of investment. The difference between interest rates of term deposits or Fixed Deposit schemes offered by banks and small savings scheme is around 50 basis points. Despite higher returns, investors appear to be hesitant to opt for small savings schemes instead of Fixed Deposits (FDs) by commercial banks.
Experts believe that additional features such as loans, credit cards and balance transfers make banks more attractive than post office financial services. Factors such as Jan Dhan bank accounts and India Post Payments Bank are set to further decrease the popularity of small savings schemes. Hence, the increase in rates by small savings schemes would not necessarily drive customers to shift their investment schemes from banks.
24 October 2018
Key features of Indian Post Office Payments Bank
India Post Payments Bank is the latest addition to the existing payments bank (PB) nationwide. Other PBs include Airtel Payments Bank, Paytm Payments Bank, Aditya Birla Idea Payments Bank, Fino Payments Bank and Jio Payments Bank. The objective of this model is ‘financial inclusion’ of more than 19% of the current population which does not have access to banking services. The services offered by a payments bank involve depositing up to Rs.1 lakh into current or savings account, withdrawal or deposit of money and other remittance-based operations.
One cannot get credit from a payments bank. Products such as loans and insurance are provided after collaborating with other financial institutions. Most of the services can be accessed through respective mobile phone apps.
One can open an account within a PB by entering the required KYC details along with the Aadhaar Card into the mobile app. PBs have multiple access points at convenient locations across the country. This makes them easily accessible for the general public. Recently, there was a decline in the interest rates of a majority of PBs to 4%. However, these rates are higher than the typical 3.5% offered by traditional banks. One does not have to hold a minimum balance within a PB.
7 September 2018
Special schemes offered by Post Office
There are a number of attractive schemes offered by the Post Office in the country. The 5-year Post office Time Deposit scheme pays a high interest rate of 7.6% per annum.
For an investment tenure of 3 years, the rate of interest offered 7.1% per annum. There are also a number of small savings schemes that are available to those who are 60 years and above. The rate of interest offered on Senior Citizen’s Savings Scheme is 8.30% per annum. The schemes offered include the 15-year Public Provident Fund and the Post Office Monthly Income Scheme.
The rate of interest offered on the PPF scheme is 7.6% per annum, while the rate earned on the Post Office Monthly Income Scheme is 7.3% per annum.
The lock-in period for the PF account is 15 years and in no case can premature withdrawals be made.
20 April 2018
Post Office time deposits get higher tax exemption
In an effort to provide more tax benefits for senior citizens in India, Finance Minister Arun Jaitley announced various tax benefits in the Union Budget 2018.
The interest earned from Post Office fixed deposits will be exempted upto Rs.50,000. The earlier limit was Rs.10,000. This means that those above 60 years of age can earn Rs.50,000 as interest in a given financial year, without paying tax. Therefore Tax Deducted at Source (TDS) will not be applicable for these FDs if interest earned on the investment adds up to Rs.50,000 from henceforth.
1 February 2018
India Post Payments Bank begins operations
On Monday, the government of India launched the India Post Payments Bank (IPPB), the pilot program has been launched in Raipur and Ranchi with IPPB providing basic financial services. By the end of September the government aims to expand the IPPB network to 650 branches, the new branches will be co-located with existing post offices. Payments Banks accept limited deposits and offer payment services, but do not offer any credit services such as loans or credit cards. The India Post Payments Bank is the second of its kind in the country to begin operations, the first payments bank in India was launched as Airtel Payments Bank. The e-payments company PayTM has also received a license from the Reserve Bank of India (RBI) to open a payments bank and is expected to start operations soon. Due to the lower overhead costs of payments banks, they might pose a challenge to traditional banks for smaller amounts of deposits. These new payments banks will offer basic financial services, current and savings accounts with a ceiling limit of Rs.1 lakh, distribution of mutual funds, insurance and pension products, the payments banks will also act as a correspondent to other banks for credit products to service rural areas and other underserviced areas of the country. IPPB will offer three different types of accounts to its customers, Safal, which is a regular account, Sugam, which is a basic savings account and Saral, which is a small savings account. All three accounts require the customer to make a Rs.100 initial deposit and do not have a minimum balance requirement. The Safal and Sugam accounts require the KYC details of the customer and the Saral account does not require the KYC details of the customer, as the Saral account is targeted to customers new to banking. The interest rates for deposits with a quarterly average balance of Rs.25,000 is 4.5%, for deposits with a quarterly average between Rs.25,000-Rs.50,000 the interest rate is set at 5% and for deposits above Rs.50,000 the interest rate is set at 5.5%.
9 February 2017
Time Deposit Rates of India Post Office
The Indian Post Office, being a widely distributed postal network, offers several savings schemes to encourage the common man to invest for the future. The term deposits offered by the Post Office are available for different tenures at competitive interest rates. Post the directive issued by the Reserve Bank of India, the Post Office has revised its rates.
Though the interest is paid on an annual basis, the calculation is done quarterly. For the period of 1 year, the interest rate applicable is 7.1%. For other tenures, namely 2 years, 3 years, and 5 years the rates of interest computed are 7.2%, 7.4%, and 7.9% per annum, respectively. These revised rates are applicable from April 01, 2016.
4 April 2016
Government may slash Post Office Saving Interest Rates
The Finance Ministry is expected to take a call on interest rate, based on the government’s move to slash interest rates on various small savings like Post Office savings by the end of December.
Several banks and the RBI are calling in for reduction in small savings rates and bring them in line with market rate. According to sources, cuts in rate of interest can prove effective in transmission of monetary policy. At the current rate of 8.7-9.3% in small saving deposits, banks aren’t quite keen in transmitting the entire policy rate reduction by Reserve Bank to borrowers.
Smalls saving schemes include Post Office Monthly Income Scheme (MIS), PPF, Post Office fixed Deposit Scheme, Senior Citizen's Savings Scheme, Post Office Savings Account and Sukanya Samriddhi Accounts.
As per sources, a final decision on the interest rates of various small saving schemes after review may be taken towards the end of the month, sources said.
7 December 2015