Small Savings Schemes (SSSs) are savings schemes operated by the central government of India, and are maintained in the Public Account of India. They mobilise money from households and channelise it to the government expenditure. SSSs are an important source of household savings in India, and operate through post offices, banks, and small savings agents.
Small Savings Schemes are broadly grouped into three categories:
- Post office Deposits
- Post Office Savings Account – it improves financial inclusion in India by utilising the vast postal network to provide simple savings solutions even to the areas where normal banks do not reach.
- Social Security Schemes
- Public Provident Fund (PPF) – it is a long term savings-cum-tax-saving instrument. There is a cap of 1.5 lakh on the annual investment by an individual. The minimum term of a PPF is 15 years.
- Sukanya Samriddhi Account Yojana (Girl Child Prosperity Account) – This scheme encourages parents of a girl child to build a fund for the future education and marriage expenses of their girl child. The scheme offers good interest rate and tax benefits. It has a tenure of 14 years.
- Senior Citizens’ Savings Scheme – This scheme offers regular income to the retirees along with assured returns. Its minimum tenure is 5 years, and there is an overall investment limit of Rupees 15 lakh per individual.
- Savings Certificates
- National Savings Certificate (NSC) – Unlike a PPF, there is no cap on investments in the NSC, but the interest is fully taxable. It has a minimum tenure of 5 years.
- Kisan Vikas Patra – it is a long term savings instrument that doubles a one time investment in approximately 9 years and 10 months.
Are small savings schemes any different from a normal savings account or a fixed deposit in a bank?
Small savings schemes are directed at lower income groups, and thus have limitations on the amount that can be invested in them. For example, only 1.5 lakh Rupees per annum can be invested in a PPF. SSSs usually give a higher interest rate than a bank account and also give tax benefits. For example, interest amount from a PPF is exempted from income tax. This is in contrast to interest from a maturing Fixed Deposit in a bank, that is taxed – effectively reducing an interest rate of 7.5% to approximately 5.25% over a 15 year period.
Interest rates on Small Savings Schemes vary for each scheme and are revised every three months. Unlike bank rates, that are determined in line with economic requirements, the rates on small savings schemes are influenced by voters. The government often hesitates from reducing these rates, especially in an election year.