FD vs Small Savings Schemes: Which Investment Option Offers Better Returns?
Choosing the Right Investment for Secure and High Returns
If you are planning to invest your money, you might be wondering whether a Fixed Deposit (FD) or a Small Savings Scheme would be the better choice. Both options provide secure and guaranteed returns, but the key difference lies in interest rates, tax benefits, and overall returns. Let's compare them to help you make an informed decision.
Interest Rate Comparison: FD vs Small Savings Schemes
Fixed Deposits generally offer an average interest rate of 6.7% to 7% per annum, while Small Savings Schemes tend to provide higher returns. Here’s a breakdown of the current interest rates:
| Investment Instrument | Interest Rate (Per Annum) |
|---|---|
| Fixed Deposit (FD) | 7% (Average) |
| Public Provident Fund (PPF) | 7.1% |
| Senior Citizen Savings Scheme (SCSS) | 8.2% |
| Sukanya Samriddhi Account (SSA) | 8.2% |
| National Savings Certificate (NSC) | 7.7% |
| Kisan Vikas Patra (KVP) | 7.5% |
Clearly, Senior Citizen Savings Scheme and Sukanya Samriddhi Account offer the highest returns at 8.2%, followed by NSC (7.7%) and KVP (7.5%), making them more attractive than FDs.
Tax Implications: New Tax Regime and Investment Choices
Under the new tax regime (which is now the default option), tax exemptions on investments are not available. This means:
- PPF and Small Savings Schemes will no longer enjoy tax exemptions at the time of investment, making them similar to FDs in this regard.
- However, the interest earned on investments like PPF remains tax-free in later years, while interest on FDs is fully taxable.
Who Should Choose What?
- If you fall under the 30% tax bracket, FDs may not be ideal as you lose one-third of your interest income to taxes.
- If you are in the 20% tax bracket, around one-fifth of your FD interest goes toward taxes.
- If you are in the lower or zero tax bracket, the tax burden is minimal, making FDs a viable option.
Expert Opinion
According to Preeti Zende, founder of Apna Dhan Financial Services, every investment product has its own benefits and should be chosen based on an individual’s financial goals and tax situation.
Final Verdict: Which One Should You Choose?
- For higher returns, PPF, SCSS, and Sukanya Samriddhi are better choices.
- For liquidity and flexibility, Fixed Deposits might be more suitable.
- For senior citizens, the SCSS offers the best combination of high interest and security.
Conclusion
While FDs remain a popular and secure choice, Small Savings Schemes offer better returns and tax advantages in the long run. The right choice depends on your financial needs, tax bracket, and investment goals.
