The Centre has cut the interest rates on small savings schemes for the July-September 2019 period following the downward trend in the RBI repo rates as well as the yields on 10-year government securities. The interest rates were lowered by 0.1 percentage points for all the schemes except savings deposit, which remains at 4 per cent per annum.

Even after the cut, the interest rates of small savings schemes with a five-year tenure look attractive compared with that offered by conventional banks. For fixed deposits, while private sector banks offer interest at the rate of 7.25-7.5 per cent, public sector banks offer a lower 6.25-6.75 per cent per annum.

Under the same time category, the revised interest rates of Post Office Time Deposits and National Saving Certificates (NSC) stand at 7.7 and 7.9 per cent per annum, respectively.

Thus, if you can lock in your investment for five years, it is advisable to invest in NSCs.

There are a few small finance banks that offer 8 per cent per annum on fixed deposits. However, as the interest earned on the NSC is considered as reinvestment and eligible for tax deduction, post-tax yields on NSCs will be higher.

For senior citizens, the Senior Citizen Savings Scheme (SCSS), which allows an investment of up to ₹15 lakh, now offers a quarterly interest payout of 8.6 per cent. This is superior to the Pradhan Mantri Vaya Vandana Yojana (PMVVY), which offers 8-8.3 per cent across monthly/quarterly/half-yearly/annual payout options for an investment of up to ₹15 lakh. However, while the SCSS has a tenure of five years which can be extended, the PMVVY is a 10-year product.

 

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For fixed-rate products including NSCs, SCSS and Post Office Time Deposits, the rates announced each quarter apply only to investments made in the quarter and will hold good till their maturity.

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