FDs vs Small Savings: 5 Factors Beyond Interest Rates — SkimNews
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- Government of India kept small savings scheme interest rates unchanged for the July-September 2026 quarter, with the Senior Citizen Savings Scheme and Sukanya Samriddhi Yojana offering the highest rate at 8.2% and the Public Provident Fund at 7.1%.
- Axis Bank and ICICI Bank offer FD rates up to 6.50% on listed tenures, while HDFC Bank offers up to 6.45%, making large private-bank FDs trail the top small savings rates by roughly 170 basis points.
- Bank of India offers FDs up to 6.85% and Bank of Baroda up to 6.75% in the public-sector segment, but several small finance banks exceed 8% per Paisabazaar data, narrowing the gap with government schemes.
- PPF carries Exempt-Exempt-Exempt (EEE) tax status with a ₹1.5 lakh deduction under Section 80C of the Income-tax Act, unlike common FDs where interest is taxed at the investor's slab rate and banks may deduct TDS once the threshold is crossed.
- SCSS caps investment at ₹30 lakh and pays interest quarterly, while the Post Office Monthly Income Scheme pays monthly and PPF runs a 15-year compounding term with annual contributions limited to ₹1.5 lakh, meaning each product targets a distinct cash-flow profile.
Why it matters: The headline-rate gap between FDs (6.45-8%+) and small savings (7.1-8.2%) shrinks sharply once taxation is factored in: PPF's EEE status and Section 80C deduction mean a 7.1% rate can outperform a 6.5% FD in after-tax compounding over 15 years. Investors should match lock-in, payout frequency, and tax bracket to their goal — a retiree needing quarterly income and a 30-year-old building a corpus face entirely different correct choices.
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