RBI has started reducing interest rates. This has affected the interest rate of fixed deposit schemes of banks. The repo rate reduces the interest rate of other loan including bank homes. They also reduce the interest rate of fixed deposits. This situation is being seen right now. With this, investors are a bit confused. They do not understand whether they should invest in the FD scheme of banks or invest in small savings scheme.
Bank FD has long been the favorite option for investment
The FD scheme of the bank has been the first choice for investors who have not taken risk for a long time. The special feature of FD is that it gets a pre -fixed return. If needed, money can be withdrawn before maturity. They are also considered good for investment protection. On the other hand, the government is guaranteed by the small savings scheme. PPF, NSC, Senior Citizens Savings Scheme (SCSS) and Post Office Monthly Income Scheme (POMIS) are attractive after tax.
Bank FD under Return Tax
The interest rate of the bank’s FD scheme may vary by bank. Till recently, banks were offering interest from 6.5 to 7.5 per cent on their FDs. It has to be kept in mind that the interest on FD comes under the scope of tax. It has to be paid tax according to the slab of taxpayers. More than this, the return for taxpayers coming in the slab decreases significantly. This can be understood by an example. If a person falls in a 30 per cent tax slab, then after paying tax on FDs with 7.5 per cent interest, her return will be only 2.5 per cent.
Annual interest rate on PPF 7.1 percent
The government announces the interest rate of the Small Savings Scheme every quarter. However, there is not usually a change in interest rates for a long time. Currently, PPF gets a tax-free return of 7.1 percent year. In this, tax deduction is also available under section 80C on investment. The annual interest in the Senior Citizens Scheme is 8.2 percent. Its payment is every quarter. The interest rate in NSC is 7.7 percent. It becomes acuble every year. Then both the principal and interest are found on maturity.
Both are better in terms of security
In terms of security, there is not much difference between the two. However, the government’s guarantee is available on the small savings scheme. On the other hand, deposits of up to Rs 5 lakh deposited in the bank are considered secure. The reason for this is DICGC guidelines. This means that due to any reason for the bank, customers are compensated by banks up to Rs 5 lakh. Even if a customer had more money in FD, he will be able to get back only 5 lakh rupees.