Time to revisit post office!

Madhurendra Sinha

THE Reserve Bank of India has been on rate-cutting spree; since February, it has reduced the repo rate thrice. The latest cut of 0.50 percentage points last month sent shockwaves across the financial sector. In response, commercial banks across the country began slashing interest rates – for both savings and fixed deposits – leaving customers scrambling for better options.

India’s largest bank, the State Bank of India (SBI), cut its savings account interest rate to a meagre 2.5 per cent. This was followed by HDFC Bank, the largest in the private sector, which reduced its rate by 0.5 per cent. Previously, HDFC offered 2.75 per cent interest for balance below Rs 50 lakh and 3.25 per cent for balance above that threshold. Another private sector lender, ICICI Bank, also lowered its savings account rate to 2.5 per cent.

Seniors’ anxiety

While these reductions in savings rates are a matter of concern, more alarming cuts have come in fixed deposit (FD) rates. SBI again led the way here with sharp reductions, prompting other banks to follow suit.

Senior citizens and many others, who primarily rely on interest income from FDs, have been left searching for alternative investment avenues. Stock markets remain volatile, mutual funds require long-term commitment, and many financial instruments don’t inspire sufficient confidence among them. . Here comes India Post, the small savings schemes of which offer much-needed glimmer of hope. These schemes not only provide higher returns than most commercial banks, but are also backed by the Government, making them a safe and reliable option.

One of the most popular offerings is the Public Provident Fund (PPF), which currently yields 7.10 per cent annual interest. While this may seem modest, the real benefit lies in the taxfree maturity amount – a feature that significantly boosts net returns. The PPF’s popularity among the investors is such that some banks also facilitate this scheme.

Another attractive scheme is the National Savings Certificate (NSC), which offers an interest rate of 7.7 pc with a five-year lock-in period. An investment of Rs 5 lakh in NSC will grow to Rs 7,24,517 on maturity.

Attractive schemes

The Recurring Deposit (RD) scheme offered by India Post is another solid choice. Though the current interest rate stands at 6.7 pc, it benefits from compound interest. For instance, investing Rs 8,400 per month over five years will yield a total return of Rs 5,99,747 – a huge gain of Rs 95,747. India Post also caters specifically to senior citizens through its Senior Citizens Savings Scheme (SCSS), which currently offers a generous interest rate of 8.25 pc. A Rs 5-lakh investment in this scheme over five years will yield Rs 7,05,000 .

The Kisan Vikas Patra (KVP) is yet another attractive option with an interest rate of 7.5 per cent. There are several other India Post schemes that combine safety with respectable returns.

Isn’t it time to revisit the good, old post office – once viewed as a ‘downmarket’ option – as a smart financial ally? Give it a thought!

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