Low Bank fixed deposit (Bank FD) returns have made them unattractive for most investors. Bank FD interest rates have fallen to the levels as seen in 2004-05. SBI Bank is offering interest rates between 2.9% and 5.4% across different tenures. The current bank FD interest rates are almost at par with the savings bank account. In fact for shorter duration, the bank FDs offer lower interest than bank savings account. However there is no need to get disappointed. You can still earn slightly higher returns than a bank deposit with certain post office saving schemes, NPS and bank FDs of smaller banks. Take a look at the options:
Post Office National Savings Monthly Income Account (POMIS): POMIS is a five-year investment with a maximum cap of ₹4.5 lakh under single ownership and ₹9 lakh under joint ownership. POMIS account can be opened in single or joint capacity (3 adults). A minor above age of 10 can also open an account via a guardian. POMIS offers an interest rate of 6.6% payable monthly. POMIS has a maturity tenure of five years.
7.15% RBI Floating Rate Savings Bonds : RBI Savings Bond have a maturity of seven years. The Government of India allowed to issue Floating Rate Savings Bond from July 1. The interest rate for the period July 1 to December 31, is 7.15% which will be payable on January 1 next year. The interest rate on RBI Floating Rate Savings Bond will be reset every six months. RBI Savings Bonds are not tradable in the secondary market. Interest on the RBI Floating Rate Savings Bond are fully taxable and tax will be deducted while making payment of interest on bonds from time to time.
An investor can invest in bonds for a minimum sum of Rs1,000. There is no maximum limit. These bonds offer special premature withdrawal facility to senior citizens.
NPS Tier II: NPS Tier II is a voluntary account and having an NPS Tier I account is a prerequisite to open Tier II Account. You can invest and redeem from Tier II Account at your discretion provided you are not a Central Government employee claiming deduction under Section 80C for your contributions to Tier II Account.
NPS Tier II Account Scheme G, that invests in government bonds and related instruments has given double-digit returns in the last one year. The average returns in the category are 11.84%. Whereas a one-year fixed deposit with the country’s top lender, SBI Bank fetches you an interest rate of 5.1%.
For other tenures also the NPS scheme has fared better than bank fixed deposits.
5-year National Savings Certificates (NSC): Another post office savings scheme, NSCs are quite popular among the HNIs to diversify their fixed income portfolio. These certificates are secure and useful for those who seek safety of capital. NSCs at present offer interest rate of 6.8 % compounded annually but payable at maturity.NSC deposits qualify for tax rebate under Sec 80C of IT Act. Certificates can also be purchased on behalf of a minor above 10 years of age. The interest for first four years is reinvested however, the interest earned in the fifth year is taxable as per the applicable tax slab rate.
Senior citizen Savings Scheme (SCSS): An individual of age 60 years or more can invest in SCSS. At present, SCSS pays an interest at the rate 7.4 % per annum. SCSS allows only one deposit not exceeding Rs15 lakh. The depositors may operate more than one account in individual capacity or jointly with spouse. Maturity period is 5 years. After maturity, the account can be extended for further three years. In case of SCSS accounts, quarterly interest shall be payable on 1st working day of April, July, October and January.
Small bank FDs : Some small finance banks (SFBs) offer interest rates ranging between 8% to 9% on select fixed deposits (FDs). Senior citizens get 50 basis points higher on these deposits as compared to general customers. The interest rates offered by these banks are certainly lucrative, as compared to other top lenders like State Bank of India (SBI), HDFC Bank, ICICI Bank, Axis Bank and others.
Kisan Vikas Patra (KVP) : At a fixed interest rate of 6.9 % compounded annually, a single individual or an adult on behalf of a minor can invest in KVPs. Investment can also be done in joint holding. KVP can be purchased from any Departmental Post office. Certificate can be encashed after 2 & 1/2 years from the date of issue