Post office is available everywhere in India. Their presence is vast. And Indian Government has used this infrastructure to encourage Indians to save more through various schemes.
But are the savings schemes offered by the post office beneficial for us? Should you invest in them? Let’s find out.
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Post office in India provides most of the services that any retail bank provides except loans. Yes, the post offices offer savings accounts, fixed deposits, recurring deposits and investment schemes.
In this post, let’s focus on the other savings scheme offered by the post office. We will focus on the essential details of the schemes. You can read more details here.
Saving schemes offered by the post office
1. Post Office Savings Account
Like banks, the post office’s savings account provides facilities like cheque book, ATM cards, mobile banking, etc.
This account is quite popular in the rural parts of India. The Government decides the rate of interest for the post office savings account. Currently, the interest rate is at 4% paid end of each financial year.
Interest income up to ₹10k per annum is tax exempted, and for senior citizens, it’s up to ₹50k.
2. Post Office Recurring Deposit Account
This 5-year recurring deposit account allows you to deposit every month. The current interest rate for this scheme is 5.8% per annum.
With this account, you can avail a loan after 12 instalments are deposited. A loan facility is available for up to 50% of the balance credit in the account. And the interest on the loan will be 2% + RD interest rate.
For this account, they offer no tax benefits on the investment or interest income.
3. Post Office Time Deposit Account
This is a variant of fixed deposit where you can select a tenure of 1, 2, 3 or 5 years. The rate of interest is 5.5% per annum. Only for the 5-year period will you receive 6.7% per annum.
You can extend this account and also pledge it. And only the investments in 5-year TD qualify for the tax deduction under section 80C.
4. Post Office Monthly Income Scheme Account
POMIS is a low-risk investment scheme that offers regular monthly income to depositors in interest payments. There is a lock-in period of 5 years, and the current interest rate is 6.70%.
Because of high-interest rates, most people invest in this scheme for their kid’s future, but there is a maximum investment limit. A maximum of ₹4.5 lakh can be deposited in a single account and ₹9 lakhs in a joint account. The limit for accounts opened on behalf of a minor as a guardian shall be separate.
Also, no tax benefits are offered on the investments or the interest income.
5. Senior Citizen Savings Scheme
As the name suggests, only senior citizens can invest in this scheme with some exemptions for retired civilian and defence employees. The maximum investment limit is up to ₹15 lakhs, and the current interest rate is 7.6% per annum.
There is a 5-year lock-in period, and we can extend the account for another three years.
Interest is taxable if total interest income in all SCSS accounts exceeds ₹50k in a financial year. They will deduct TDS from the total interest paid. Investments are qualified for tax exemption under Section 80C.
6. National Savings Certificates
NSC is a small savings scheme that encourages savings among low-income and mid-income groups. The interest rate of 6.8% p.a. is compounded annually and paid out only at maturity.
An individual can open many accounts under the scheme. There is a 5-year lock-in period, and we can pledge the account. Deposits qualify for tax deduction under section 80C. Interest income is taxable.
7. Kisan Vikas Patra
Funds raised through this scheme are used for the welfare of farmers. The scheme pays a fixed interest of 7.0% per annum.
This scheme’s maturity period is tied to the time it takes to double the deposits. So, with the given interest rate of 7%, your deposits will double in 123 months (10 years & 3 months). And the maturity period is 10 years & 4 months.
But you can prematurely close this account after 30 months.
There is no maximum investment limit. An individual can open many accounts under the scheme. The account can be pledged or transferred. No tax benefits.
Should you invest in these post office savings schemes?
As the Government backs these schemes, we think them to be risk-free. Yes, you will receive interest income on time, and your deposits will be safe. But will your deposits grow? Will it help you in building wealth? Will it beat inflation?
Because apart from the senior citizen and Kisan Vikas Patra, all other schemes offer interest rates below 7%. Most of them have tax benefits. Interest income is taxable.
You can’t expect to create wealth through these schemes. It will be hard to beat inflation with these. So, please don’t invest in these schemes if you are planning for a long-term goal.
You can invest in them for short-term goals, where your priority is to protect your money and not build wealth.
But first, you have to look at your entire portfolio. Check if investing in them aligns with your portfolio and goals. Also, check and analyse other short-term investment options.
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