Why Post Office Schemes Are Better Than Bank Deposits?

Sunil Fernandes

Interest rates on bank deposits and various other debt instruments have virtually collapsed in the last few months. It's very difficult to get interest rates even near the 7 per cent on bank deposits. At such times, it is best to take a look at some of the post office saving schemes, which offer better interest rates than bank deposits.

In the comparison below, we have taken into consideration the interest rates offered by some of the larger banks in the country.

Interest rates on some post office schemes Vs Interest rate on bank deposits

NSC Interest Rates - 6.8% Bank interest rates for similar tenure - 5 to 6%
Senior citizen savings scheme - 7.4% Bank interest rate for similar tenure 6 to 6.8%
Kissan Vikas Patra - 6.9% Bank interest rates for similar tenure 6%
PPF - 7.1% Very few small private sector match these interest rates
Sukanya Sanriddhi - 7.6% No banks can match this interest rates
Time deposits 5.5 to 6.7% Banks are slightly lower

Post office saving schemes are very safe

Since post office saving schemes have the backing of the Government of India, they are extremely safe. In case of banks, it may not always be the same. Banks like Yes Bank have had their share of problems and had to be virtually rescued.

That makes post office schemes or as we call it small saving schemes, a better bet.

Better off when it comes to returns and tax savings

Some schemes of the post office are far better, when it comes to tax savings and returns. Take the case of the PPF. The interest is exempt from tax, apart from this one also gets tax benefits under Sec 80C. The interest rates of 7.1 per cent, offered currently are unmatched by banks, which makes it very attractive.

The one thing that we should tell our readers is that, if you are looking for service, than banks are much better. Also, for online facilities like withdrawal etc., banks are much better than post office. However, when it comes to interest rates and safety, post offices are better placed.

All in all, in a low interest rate regime, investors have not much of a choice.

About the author

Sunil Fernandes has spent 25 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. His forte remains stocks, mutual funds and tax planning.

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