Saving Schemes in India Last Updated : 04 Aug 2020

Investing in savings schemes can also help fund the education and marriage of the individual’s children. Apart from it being a disciplined way of saving money, investing in such schemes can also provide additional income. There are also various small savings schemes, where the contribution is less, but the total contribution that has been accumulated over the long-run will be large.

The risks of investing in savings schemes are very minimal since they are mostly launched by the government. Apart from providing good returns, contributions made towards savings schemes are safe and secure. The interest rates of savings schemes are decided by the government and vary every 3 months to a year.

Latest Update

Government reduces interest on NSC, PPF, and small savings schemes

Interest rates have been slashed by the Central Government on small savings schemes. The reduction has happened by 70 basis points and it now stands at 140 bps. This is applicable for the April to June quarter of FY 20-21.

Interest rates associated with PPF have been slashed by 80 bps. It currently stands at 7.1%. Kisan Vikas Patra interest rates have been reduced to 6.9%. The rate of interest for Sukanya Samriddhi scheme stands at 7.6% after a rate reduction of 0.8%. National Savings scheme interest rates have been slashed b y 110 basis points and it currently stands at 6.8%.

Advantages of Savings Schemes

The main advantages of investing in savings schemes are mentioned below:

  • Long-term benefits: Individuals can achieve their long-term goals such as retirement plans, children’s education, and children’s marriage by investing in savings schemes.
  • Various savings schemes: The number of savings scheme currently available is large. The benefits vary according to the scheme and the sector. For example, the Pradhan Mantri Jan Dhan Yojana is designed to help people who are below poverty line and the Sukanya Samriddhi Yojana helps a girl child financially.
  • Hassle-free: The maintenance and investment towards the schemes are very simple and most of the contributions made towards the schemes can be done online.
  • Security and safety: The contributions that are made towards the schemes are minimal on risk as well as safe and secure since the schemes are launched by the Indian Government.

Different types of Savings Schemes

Some of the various schemes that are available are mentioned below:

Public Provident Fund (PPF)

The Public Provident Fund (PPF) scheme is one of the most popular and safest investment options that is available in the country. Under Section 80C of the Income Tax Act, contributions made towards the scheme as well as the interest that is generated from the contributions are also tax exempt.

The scheme can be opened at post offices and banks, and the duration of the scheme is 15 years. Individuals are allowed to increase the duration of the scheme by a further 5 years. The rate of interest for the FY 2018-2019 is 8% p.a. and the interest is compounded on a yearly basis. Individuals must make a minimum contribution of Rs.500 and can make a maximum contribution of Rs.1.5 lakh on a yearly basis towards the scheme.

Employees’ Provident Fund (EPF)

The Employees’ Provident Fund Organisation (EPFO)launched the EPF scheme with the main aim of helping employees save money for their retirement. It is mandatory for organisations with more than 20 employees to contribute towards the EPF scheme. The employee and employer each contribute 12% of the employee’s Dearness Allowance (DA) and basic salary towards the scheme.

Employees can withdraw funds from the scheme in case of medical emergencies, construction of a house, buying a house or land, repayment of home loan, etc. The rate of interest of the scheme for FY 2018-2019 is 8.65% p.a. The rate of interest is decided by the EPFO on a yearly basis.

National Pension System (NPS)

The NPS was launched by the Central Government with the main aim of providing individuals a regular income after their retirement. Employees can avail the benefits of the scheme by paying a small amount of premium.

Employees will receive a lump sum amount at the time of their retirement as well as a certain percentage will be paid back as pension on a monthly basis after their retirement.

Sukanya Samriddhi Yojana Account (SSY)

The Sukanya Samriddhi Yojana (SSY) scheme was launched by Prime Minister Narendra Modi to help secure the future of a girl child. The current rate of interest offered by the scheme is 8.5% and an SSY account can be opened at post offices or banks.

The minimum and maximum deposit that can be made in a year towards the scheme is Rs.1,000 and Rs.1.5 lakh, respectively. The account holder must make contributions towards the scheme for a duration of 14 years and the maturity period of the scheme is 21 years. Individuals can transfer the SSY account from banks to post offices and vice versa.

Atal Pension Yojana (APY)

The main aim of the scheme is to help individuals who are below the poverty line. The scheme also benefits people who work in the unorganised sector and require financial support from the government. Individuals pay a very low premium towards the scheme and receive a pension after their retirement. However, it is mandatory that individuals have an active savings account in order to avail benefits from the scheme.

Citizens between the ages of 18 years and 40 years can apply for the Atal Pension Yojana scheme. Contributions towards the scheme must be made for a minimum duration of 20 years. Individuals must make very low contributions towards the scheme, however, if the contributions that are being made are high, the pension that is received will also be high. However, in case individuals opt for the Atal Pension Yojana scheme, they cannot opt for any other savings scheme.

Voluntary Provident Fund (VPF)

Employees can opt for the VPF scheme on a voluntary basis. Under the VPF scheme, employees are allowed to contribute their entire basic salary towards the scheme, unlike the EPF scheme, where only 12% of the basic salary can be contributed.

Any contributions made towards the VPF scheme will impact the EPF scheme and vice versa. The rate of interest that is generated from contributions made towards the scheme for the FY 2018-2019 is 8.65% p.a.

Kisan Vikas Patra (KVP)

The Kisan Vikas Patra certificate scheme is offered by post offices in India. The rate of interest that is offered by the scheme at the moment is 7.7% and it is compounded on an annual basis. The minimum contribution that must be towards the scheme is Rs.1,000 and there is no maximum limit. Over the course of 112 months, the amount invested towards the scheme doubles.

Individuals are allowed to add nominees to the scheme and the certificate can be transferred from one individual to another and from one post office to another. Individuals are also allowed to encash the certificate after 30 months from when the certificate was issued.

Senior Citizens Savings Scheme (SCSS)

The SCSS was launched with the aim of helping individuals who are 60 years and above. Individuals who are between the ages of 55 years and 60 years and have chosen for Voluntary Retirement Scheme (VRS) can also avail the benefits of the SCSS.

The duration of the SCSS is 5 years and the rate of interest under the scheme is 8.7% p.a. Individuals must invest a minimum of Rs.1,000 towards the scheme and the maximum investment that can be made is Rs.15 lakh. Individuals can also transfer their SCSS accounts from a post office to a bank and vice versa. Under Section 80C of the Income Tax Act, tax deductions are available for investments made towards the scheme.

National Savings Certificate (NSC)

The NSC scheme is one of the most popular schemes in India. Since the scheme is backed by the Indian Government, guaranteed returns and tax benefits are provided. The duration of the scheme is 5 years and individuals can invest in the scheme at post offices. The Indian Government decides the interest rates of the scheme on a quarterly basis.

The rate of interest of the scheme for FY 2018-2019 is 8.0%. The interest that is generated is compounded on an annual basis. The minimum contribution that must be made towards the scheme is Rs.100 and there is no limit to the amount of contribution that can be made. Under Section 80C of the Income Tax Act, individuals are eligible for tax benefits on the contribution they make towards the scheme. Individuals are also allowed to transfer the certificate to another person’s name. However, this can be done only once.

Post Office Savings Scheme

The various savings schemes that are offered by India Post are very popular as the risks are very minimal and most of the schemes provide guaranteed returns. The process to open any saving schemes accounts at the post office is simple and quick. The many good features offered by the schemes also make them popular.

The savings schemes that are offered by India Post are mentioned below:

  • Post Office Savings Account
  • National Savings Time Deposit Account
  • Senior Citizens Savings Scheme Account
  • National Savings Certificate Account
  • Sukanya Samriddhi Account
  • National Savings Recurring Deposit Account
  • National Savings Monthly Income Account
  • Public Provident Fund Account
  • Kisan Vikas Patra Account

News About Saving Schemes

  • Tax savings investment deadline now 31 July 2020

    As the Financial Year (FY) 2019-20 has come to an end amidst the lockdown for containing the spread of Coronavirus, a lot of the taxpayers have failed to make their tax-saving investments. In order to provide relief to the taxpayers, the deadline to make tax-saving investments had been extended to 30 June, 2020 and now extended further to 31 July, 2020.

    While a lot of the tax-saving instruments – like Sukanya Samriddhi Yojana (SSY), Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Savings Certificate (NSC), Unit Linked Insurance Plan (ULIP), life insurance, 5-year term deposit have fallen under section 80C of the Income Tax Act, it can help you claim deductions from taxable income up to Rs.1.5 lakh.

  • Government reduces interest on NSC, PPF, and small savings schemes

    Interest rates have been slashed by the Central Government on small savings schemes. The reduction has happened by 70 basis points and it now stands at 140 bps. This is applicable for the April to June quarter of FY 20-21.

    Interest rates associated with PPF have been slashed by 80 bps. It currently stands at 7.1%. Kisan Vikas Patra interest rates have been reduced to 6.9%. The rate of interest for Sukanya Samriddhi scheme stands at 7.6% after a rate reduction of 0.8%. National Savings scheme interest rates have been slashed by 110 basis points and it currently stands at 6.8%.

  • Interest rate on government savings schemes may be reduced

    The government may cut interest rates on its small savings schemes such as National Savings Certificate (NSC), Public Provident Fund (PPF), Senior Citizens Savings Scheme (SCSS), and post office deposits. The interest rates for these savings schemes for the April to June quarter will be announced before 31 March. The interest rates were kept steady for the quarter January to March. These rates are revised on a quarterly basis. Currently the interest rates for NSC and PPF are 7.9% p.a. The interest rate on the Senior Citizens Savings Scheme, which is for a 5-year duration, is 8.6% p.a. The interest rate on post office savings deposits is 4% p.a. The Sukanya Samriddhi account, which is focused on girl children, has an interest rate of 8.4% p.a. which is compounded on an annual basis. These rates have been revised on a quarterly basis since April 2016. However, the formula for calculating this may not have been strictly followed so far.

  • Govt may cut interest rate on PPF, NSC, Senior Citizen Saving Scheme and Sukanya Samriddhi Yojana

    According to a government official, the Government of India is likely to reduce interest rates on small saving schemes.

    This means that the interest rates of Public Provident Fund (PPF), National Savings Certificate (NSC), Senior Citizen Saving Scheme (SCSS) Sukanya Samriddhi Yojana (SSY) and other small savings schemes will get affected.

    The government official said that the gap between the repo rate and the small saving interest rates need to come down.

    The government official said that RBI may cut repo rate further by 25 bps to stem the economic slowdown and the impact of Coronavirus on global markets. Federal Reserve and Bank of England reduced their interest rates.

  • Decline in the number of agents working on small saving schemes in the country

    The number of agents in the city of Coimbatore who has been working on the small savings schemes in order to promote the idea have been declining. These agents have been working amongst the public to help promote the notion of savings. The decline in their number has been majorly due to the state government withdrawing their annual incentive around 10 years ago.

    In order to soften the blow, the district administration has been looking to increase the number of these agents working for the scheme in the district. The administration looks to increase and add to the current number of 1,400 agents working under the scheme.

    According to an official from the district administration, 1,010 women have been employed and working under the Mahila Pradhan Kshetriya Bachat Yojana (MPKBY). They have been working in order to promote the product of Recurring Deposits amongst the public. 390 people work as agents under the Standard Agency System to promote fixed deposits in the country. For each deposit made, agents working under the Standard Agency System will be getting 0.5% as commission and agents of MPKBY will be getting a commission of 4%.

    Until 2011, according to the source, the state government had been giving the commission of 0.5% to SAS agents and 2% to MPKBY agents on the total deposits they had made in a year. However, the state government abruptly stopped paying the incentives due to which many agents had decided to opt-out of their job. In 2011, the number of agents was 2,000.

  • Small savings schemes may see a revision in interest rates in the next quarter

    According to a hint made by Atanu Chakraborty, the Secretary of the Department of Economic Affairs, the interest rates of small savings schemes may be revised in the next quarter.

    Revision of the interest rates will be done according to the market rate so that the transmission of the monetary policy rate is quicker. The government did not change the interest rates of small savings schemes during the current quarter. Therefore, the interest rates for the National Savings Certificate and the Public Provident Fund remained the same even though the bank deposit rates were changed. According to Atanu Chakraborty, currently, in the country, there are about Rs.114 lakh crore in bank deposits and Rs.12 lakh crore in small savings schemes. Therefore, due to Rs.12 lakh crore in small savings schemes, the liability of banks are getting affected. However, he added that the interest rates of small savings schemes may soon be linked to the market rate. Currently, the difference in the interest rates between small savings schemes and deposit rates of banks for a tenure of one year is nearly 100 basis points.

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