23-07-2025
Small savings schemes vs FDs: What should investors opt for? An explainer
After RBI cut repo rate by 100 basis points across three monetary policy meets in 2025, most banks have reacted by cutting their fixed deposits (FD) interest rates which now hover in the range of 5.5 to 6.5 percent per annum. In this backdrop, small savings schemes definitely give relatively higher returns to investors while also providing income tax benefit at the same time.
Let us understand more on this here
Although the difference between interest rates on FDs and post office schemes is minimal, the savings that accrue on account of income tax exemption is high. For example, when a depositor stands to earn 7 percent on fixed deposits and he falls in the tax rate of 20 percent (say), then after tax, his take home return would be reduced to 5.6 percent.
On the other hand, interest income on small savings schemes is totally exempt from income tax (I-T), besides the tax deduction (under section 80C) which is given against the investment made. Schemes that are eligible for 80C deductions include PPF, senior citizen savings scheme and five-year term deposits.
Here we list out seven popular small savings schemes and interest offered on them.
Savings Recurring deposit (RD): This scheme offers 6.7 percent per annum. There is no maximum deposit limit while the minimum limit is ₹ 100.
Savings Time Deposit: It can be opened with a deposit of ₹ 1,000 whereas there is no maximum limit. This small savings scheme offers 6.9 percent, 7 percent, 7.1 percent and 7.5 percent for tenure of 1 year, 2 years, three years and 5 years. Only five year deposits are eligible for 80C exemption.
Savings MIS (monthly income account): This scheme offers 7.4 percent per annum to deposits. The maximum deposit limit is ₹ 9 lakh for a single account and ₹ 15 lakh for a joint account.
IV. Senior Citizens Savings Scheme Account: This scheme offers 8.2 percent per annum to depositors. Maximum deposit limit is ₹ 30 lakh and it is also eligible for income tax deduction. Small Savings Scheme Interest (%) Interest Rate (%) National Savings RD 6.7 National Savings Term Deposit (1 year) 6.9 2 years 7 3 years 7.1 5 years 7.5 National Savings MIS (monthly income account): 7.4 Senior Citizens Savings Scheme Account: 8.2 PPF 7.1 NSC (VIII issue) 7.7 KVP 7.5
(Source:
(Public Provident Fund): This scheme is one of the most popular among small savings schemes and offers 7.1 percent per annum. The maximum which one can invest is ₹ 1.5 lakh and the deposit is eligible for deduction under 80C of I-T Act.
(VIII issue): This scheme offers 7.7 percent per annum to depositors. There is no maximum limit, and the deposits qualify for income tax (I-T) deduction.
VII. KVP (Kisan Vikas Patra): There is no maximum limit for deposits while this scheme gives 7.5 per cent per annum interest to investors.
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