Synopsis
Best investment options: FD interest rates have been on the rise, but there are other fixed income investments that are offering better returns.
Getty ImagesAfter seeing interest rates at extremely low levels, fixed deposit (FD) investors have been a happy lot. Banks have been hiking FD rates since May 2022. Many top banks now offer FD interest rates up to 7.5%. Small finance banks are even ahead, with some giving FD investors more than 9% interest rate.
Also read: Will banks increase fixed deposit interest rates now due to higher loan demand?
Yes, FD interest rates have been on the rise, but did you know that there are other fixed income investments that are offering better returns? Here is a look four just investment avenues.
5-year post office time deposit
The post office time deposit (POTD) is an alternative to the bank fixed deposits for those looking for fixed income. It is safer than than an FD because the principal invested and interest earned are backed by sovereign guarantee. In a POTD, there are four tenure options- 1, 2, 3 and 5-year deposits. Only one deposit can be made in one account, however, any number of accounts can be opened in any post office. The minimum deposit has to be Rs 200 and thereafter in multiples of Rs 200 .For the July-September 2023 quarter, the interest rate on 5-year post office term deposit is 7.5%.
5-year NSC-VIII Issue
National Savings Certificate (NSC) comes with a lock-in period of five years. Investment in this scheme can be made singly, jointly or on behalf of a minor. The scheme also qualifies for income tax deduction under Section 80C of Income Tax Act. Here the interest is not paid but rather re-invested. The reinvested interest is also eligible for deduction under Section 80C (except for in the 5th year).
For the July-September 2023 quarter, the interest rate on 5-year post office term deposit is 7.7%.
Also read: Interest rates of these post office schemes hiked by up to 30 bps for July-September quarter
RBI Floating Rate Savings Bond
The interest rate on RBI savings bonds is linked to the National Savings Certificate. The interest rate on RBI floating rate savings bonds has a spread of 0.35% over and above the interest rate on the NSC. Any change in the NSC interest rate will be reflected in the interest rate offered on RBI savings bonds. So, by adding a spread of 0.35% to the current NSC interest rate, the RBI savings bond interest rate comes to 8.05%. The interest rate on RBI savings bonds is reviewed half yearly. The minimum investment in these bonds starts at Rs 1,000 with no limit on the maximum amount. The bonds have a fixed tenure of seven years. These bonds do not offer to pay interest on a cumulative basis (at the end of the maturity of the bonds). The interest amount is paid out half-yearly on January 1 and July 1 every year.
Senior Citizens' Saving Scheme (SCSS)
Only senior citizens or early retirees can invest in this scheme. SCSS can be availed from a post office or a bank by anyone above 60.
SCSS has a five-year tenure, which can be further extended by three years once the scheme matures. The interest rate on SCSS is payable quarterly and is fully taxable. Remember, the interest rate on the scheme is subject to review and revision every quarter. The investment minimum is Rs 1,000 and the investment maximum is Rs 30 lakh. If there is an excess amount in an SCSS account, the excess funds will be reimbursed to the depositor right away, and only the PO Savings Account Interest Rate will be in effect from the date of the excess until the date of the reimbursem*nt.
For the July-September 2023 quarter, the interest rate of SCSS is 8.2%.
Do keep in mind that banks offer slightly higher rates to senior citizen investors.
( Originally published on Sep 19, 2023 )
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As an expert in financial investments, it's crucial to navigate the diverse landscape of fixed income options to maximize returns while minimizing risks. The article discusses the evolving scenario of fixed deposit (FD) interest rates, emphasizing the recent upward trend since May 2022. However, my expertise goes beyond the conventional, and I will shed light on alternative fixed income investments, providing a comprehensive understanding of each concept mentioned in the article.
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5-year Post Office Time Deposit (POTD):
- Principal and Interest Guarantee: The POTD is highlighted as a safer alternative to bank FDs due to the sovereign guarantee backing both the principal and interest earned. This implies a lower risk compared to conventional FDs.
- Tenure Options: Investors can choose from four tenure options - 1, 2, 3, and 5-year deposits, offering flexibility based on individual financial goals.
- Interest Rate: For the July-September 2023 quarter, the interest rate on a 5-year POTD is stated as 7.5%, making it a competitive option in the current market.
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5-year NSC-VIII Issue (National Savings Certificate):
- Lock-in Period: NSC comes with a lock-in period of five years, promoting a disciplined investment approach.
- Tax Benefits: The scheme qualifies for income tax deduction under Section 80C of the Income Tax Act, providing an additional incentive for investors.
- Interest Reinvestment: Unlike traditional interest payout, NSC reinvests the interest, contributing to potential compounded growth.
- Interest Rate: The article mentions an interest rate of 7.7% for the July-September 2023 quarter, making it an attractive option for fixed income.
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RBI Floating Rate Savings Bond:
- Interest Linkage: The interest rate on RBI savings bonds is linked to the National Savings Certificate, adding a layer of stability and predictability for investors.
- Review Mechanism: The interest rate is reviewed half-yearly, aligning with market changes and ensuring a degree of flexibility.
- Minimum Investment: With a minimum investment starting at Rs 1,000 and no maximum limit, the bonds offer accessibility to a wide range of investors.
- Interest Payout: Interest is paid out half-yearly, contributing to regular income for investors.
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Senior Citizens' Saving Scheme (SCSS):
- Eligibility: SCSS is exclusively designed for senior citizens or early retirees, providing a tailored investment avenue for this demographic.
- Tax Implications: The interest earned is fully taxable, and the article notes a quarterly payout structure, enhancing liquidity for retirees.
- Interest Rate: For the July-September 2023 quarter, the SCSS interest rate is stated as 8.2%, making it an attractive option for senior citizens.
In conclusion, while FDs have seen a positive shift in interest rates, exploring alternative fixed income investments like POTD, NSC, RBI Floating Rate Savings Bond, and SCSS can offer investors a diversified and potentially more lucrative portfolio. Each option caters to different investor preferences, risk appetites, and financial goals, showcasing the importance of a well-rounded investment strategy.
