Are you thinking of doing some fixed deposit (FD) for your daughter’s education or marriage? Give it a second thought before investing. The Sukanya Samdriddhi Yojana (SSY) will give you far more benefits because, apart from higher interest rates, the interest earned and maturity amount under this government-sponsored scheme are tax free. Moreover, you may get tax deductions u/s 80C on investments made in SSY.
Although FD rates have shown signs of revival, but they are still lower than the rate offered by SSY. Moreover, the rate on SSY has also been hiked as the FD rate increase, keeping the gap intact. Moreover, there is government backing for SSY and its restriction on withdrawal before your daughter becomes 18 years and above, have made the scheme secure and rewarding.
Although FD is far more liquid, but it may prove rather disadvantageous to accumulate the fund required at the time of higher education or marriage of your daughter. On the other hand, the funds locked in the SSY would turn out to be blessings in disguise for you, provided you continue to invest in the scheme.
Unlike SSY, where the return is tax free, the return on FD will depend upon in which tax bracket the investor falls. For example, effective return on an FD offering 10 per cent interest will become 7 per cent for a person falling in 30 per cent tax bracket, 8 per cent for a person in 20 per cent tax bracket and 9 per cent for the person who is in the 10 per cent bracket. However, even after the recent rate hike, the actual FD rates of top 10 banks are far below 10 per cent as shown in the example.
Top 10 Banks Fixed Deposit interest rates:
|Bank Name||Tenure||Interest Rate (p.a.) in %|
|Axis Bank||7 days – 10 years|
3.50 – 6.90
3.50 – 7.15
|Bank of Baroda||7 days – 10 years|
4.25 – 6.60
4.75 – 7.10
|Bank of India||7 days – 10 years|
5.25 – 6.25
5.25 – 6.75
|Canara Bank||7 days – 10 years|
4.20 – 6.00
4.70 – 6.50
|Central Bank of India||7 days – 10 years|
4.75 – 6.50
5.25 – 7.00
|HDFC Bank||7 days – 10 years|
3.50 – 6.00
4.00 – 6.50
|ICICI Bank||7 days – 10 years|
4.00 – 6.50
4.50 – 7.00
|State Bank Of India||7 days – 10 years|
5.75 – 6.75
6.25 – 7.25
|Yes Bank||7 days – 10 years|
5.00 – 7.00
5.50 – 7.50
On the other hand, the interest rate on SSY has been increased to 8.5 per cent per annum from the previous rate of 8 per cent. So, if a person continues to invest maximum permissible contribution of Rs 1,50,000 in the beginning of every year for all the entire payment period of 15 years and withdraws the amount at the end of 21 years, his or her daughter will get close to Rs 75 lakh.
Moreover, in case there is no other tax-saving investment, a person in the 30 per cent tax bracket would gain Rs 6,75,000 more through tax deductions u/s 80C. Similarly, a person in the 20 per cent tax bracket would gain Rs 4,50,000 more and the additional gain will be Rs 2,25,000 for a person falling in the 10 per cent tax bracket due to tax deductions u/s 80C in 15 years contribution period.
However, there is a cap of maximum investment per year in SSY, which is Rs 1,50,000. So, a person, who wants to invest more, may consider PPF (for another Rs 1,50,000 per year) or FDs or other investment plans.
Source: Financial Express