Savings scheme

Government-supported alternatives to the small savings plan

The government has kept the interest rates of the Small Savings Plans unchanged for the next quarter. Between January and March, interest rates will remain unchanged.

In today’s interest rate environment, small savings plans are the best option for conservative investors who do not invest in stocks and wish to invest in government guaranteed products.

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“Besides conservative investors, even others can keep part of their debt portfolio in the Small Savings Scheme,” said Malhar Majumder, partner, Positive Vibes Consulting and Advisory, a company that distributes financial products.


Interest rates on long-term public sector bank (PSB) FDs are lower than those offered by postal savings plans, according to the banks’ websites.

The State Bank of India offers rates between 5.3% and 5.4% for FDs between three and 10 years. For the same period, the rates of the Canara Bank are 5.5%, and the Punjab National Bank gives 5.25%.

On its three- and five-year term deposits, La Poste offers 5.5% and 6.7% respectively. Even on its Monthly Income Scheme, the rates are at 6.6%, with a five-year maturity.

The only two options where interest rates are close to small savings plans are PNB housing FDs and variable rate savings bonds. PNB Housing offers 6.6 to 6.7% for deposits between three and 10 years. The interest rate on variable rate savings bonds is 7.15%.

However, just like the Small Savings Plans, the rates for these bonds could change quarterly. The next reset date is January 1, 2021, and the government has yet to announce the new interest rate on these bonds.

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Title: Tariffs for small savings


The interest rate of the Seniors Savings Plan is 7.4%, which is better than that of bank FDs for seniors. In addition to this, another government supported program for the elderly is Pradhan Mantri Vaya Vandana Yojana. It is sold through Life Insurance Corporation of India.

Interest rates vary depending on the plan depending on the payment frequency chosen by the retiree. If the senior decides to receive annual payments, the rates can go up to 7.66%. For semi-annual, quarterly and monthly payments, they are 7.52%, 7.45% and 7.4% respectively.

Many experts believe that interest rates will stay the same or could even go down. If inflation remains high, their real return could be negative or low. Conservative investors should therefore take a multi-asset approach unless they are seniors.

They can invest a small portion in stocks through mutual funds. Even 10-15% of the portfolio in equities over the long term (over 5-7 years) will help generate better returns.

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