The finance ministry’s move to keep small savings rates unchanged during the quarter ending to December, even as banks have slashed deposit rates, not only make small savings plans more attractive but would also allow the government to raise more funds through this path.
A one-year fixed deposit (FD) with State Bank of India now contributes 4.9%. Similar deposits at HDFC Bank and ICICI Bank yield 5.1% and 5%, respectively. In comparison, one-year deposits in the Post Office, which are part of the Small Savings Programs, reach 5.5%.
The widening gap between bank FDs and post office FDs is wider in the five-year bucket. Here, SBI offers 5.4%, HDFC Bank 5.5%, and ICICI Bank 5.5%. That compares with 6.7% on a post office five-year deposit and 6.8% on a five-year national savings certificate.
The growing gap between bank deposit rates and the interest rates provided by small savings programs is expected to attract more savers to the schemes.
"If your bank FDs are close to maturity, you can get higher returns with the new FD procedure at the post office. Post offices DFs are guaranteed by the government The tax treatment is the same as the treatment of Bank FD. However, you may not get the same level of convenience as net banking and bill payment services for postal accounts, "said Amul Joshi, founder Plan Rupee Investment Services.
Premature termination of a post office fixed deposit is also tougher.