Post Office Schemes vs Tax Saving FDs – Which is the Better Investment Option?

Both common individuals and seniors now have access to a diverse range of investment options. In recent times, the post office has shifted away from fixed deposits due to an increase in interest rates.

Additionally, the central government has recently raised the appeal of small savings plans, including tax-saving programs. Senior citizens, in particular, are benefiting from the surge in fixed deposit interest rates, which is resulting in higher earnings.

If you're considering investing in tax-saving schemes, certain post office programs offer higher interest rates than tax-saving fixed deposits. These schemes include options such as the National Savings System and time deposits.

How much interest do these post office programs pay?

The National Savings Certificate Program's interest rate was raised by the federal government by 70 basis points from April to June. The interest rate on NSC rose from 7% in the previous quarter to 7.7% at the same time. The interest rate on time deposits also increased, reaching 7.5% at the same time. Additionally, the interest rates on other small savings plans have also been raised.

Which banks offer what rate of interest on FDs?

Several major banks in the country are offering the highest interest rates on tax-saving fixed deposits. HDFC Bank, Axis Bank, ICICI Bank, and Yes Bank are offering interest rates of 7%, while IndusInd Bank is offering 7.25%, DCB Bank is offering 7.6%, Bank of Baroda is offering 6.5%, Central Bank is offering 6.7%, and IDFC Bank is offering 7%. These interest rates are all being offered for the same duration.

How much can be saved in taxes?

By choosing the previous tax system and depositing money in an NSC or tax-saving fixed deposits, you can save tax up to Rs. 1.5 lakh per year under section 80C.

Investment limit: Tax-saving FD vs. NSC

With National Savings Certificates, you can invest a minimum of Rs. 1,000, and there is no upper limit. Meanwhile, the maximum amount you can invest in tax-saving fixed deposits is Rs. 1.5 lakh.

TDS: Tax-saving FD vs NSC

National Savings Certificate interest is exempt from tax deducted at source (TDS). However, if the total interest income from all deposited funds exceeds Rs. 40,000 in a financial year, a TDS of 10% will be applied. In contrast, the interest income earned from bank fixed deposits that save on taxes will have a TDS deduction, which reduces your return.

Loans availability

Individuals can use NSC as security for loans, but a bank's tax-saving fixed deposit cannot be used to obtain loans.