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Why Investors are Exiting Bank Fixed Deposits For Postal Saving Schemes? Research Team | Posted On Thursday, May 09,2019, 12:32 PM

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Why Investors are Exiting Bank Fixed Deposits For Postal Saving Schemes?



If we compare fixed deposits and postal savings schemes, then we will not be able to decide which scheme to opt for, as both the schemes offer capital protection, both are a risk-free investment and both offer guaranteed returns. However, the interest rate offered by FDs and postal savings schemes can be a deciding factor for investors, as postal savings schemes offer better rates than fixed deposits.

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Why Investors are Exiting Bank Fixed Deposits For Postal Saving Schemes?

Why Investors Flee Fixed Deposits?

RBI had recently reduced the repo rate by 50 basis points. To extend the benefit of lower repo rate to customers, some banks had slashed the lending rates. Consequently, the profit margin of banks has reduced from home loans and other loans. Due to this, the banks have cut down fixed deposit interest rates. A 5-year fixed deposit in most of the banks fetches a maximum interest rate of 7.25% a year.

As the rate of interest is quite low, compared to past FD rates, investors are looking for other investment options which offer better returns.

Why Invest in Postal Savings Schemes?

Investing in postal schemes not only offers a sovereign guarantee, but also gives better returns than fixed deposits. Listed below are a few important reasons for investing in postal savings schemes:

Higher Interest Rates

Fixed deposits were very popular mainly due to the high interest they fetched. But, with the postal saving schemes like NSC and small saving schemes, investors are exiting fixed deposits for postal schemes, mainly due to the higher interest rates. Higher rate of interest is offered by small savings schemes like post office saving schemes.

The postal office savings schemes offer guaranteed returns along with capital protection. POMIS offers 7.7%. Post Office Time Deposit offers 7.8%. This is much higher than the rate of interest currently offered by banks on 5-year fixed deposits i.e. 7-7.25% a year. The post office investment schemes are an ideal option for investors to park their money for the long term and earn decent income/returns on them.

SEE ALSO: Important Post Office Saving Schemes

Safety of the Investment:

Postal savings schemes offer capital protection and are just as safe as bank fixed deposits. Postal saving schemes are risk-free investments and are quite popular among senior citizens and rural and the urban masses. These schemes are offered by India Post with a sovereign guarantee.

Convenience of the Investment:

Postal savings schemes involve simple terms and conditions, which is why they are popular in both urban and rural areas. The safety and convenience of the investment option makes it a preferred option among the masses. The schemes are easy to avail and require minimal paperwork. The post office schemes are hassle-free and simple to opt for. The facility of transferring the post office account is available along with joint account and nomination facility.

Ease of Withdrawal

Postal savings schemes have a lock-in period of 6 months. Your money is locked for 6 months after which you can withdraw money from the scheme. However, if you withdraw money from post office savings account within a year, you will receive interest at the rate of a bank savings account.

Why do Banks Want the Government to Reduce the Interest in Postal Saving Schemes?

India Post offers different investment schemes to suit the requirements of different groups of people. Schemes like SCSS, PPF and NSC are small saving schemes to fulfill long term investment goals. Post office small savings schemes are very popular among the low-income group and the unorganized sector in both urban and rural areas. Banks, on the other hand, would find it difficult to raise money from depositors and so lending would not be easy.

Banks want the government to reduce the interest paid on small savings schemes like PPF, postal savings scheme and senior citizen saving schemes. This would provide the banks with a chance to be at par with the postal savings schemes. Otherwise, investors would definitely park their money in postal saving schemes for a higher interest rate and better returns. The government doesn’t want to reduce small saving schemes interest rates as it may affect the voter base. In such a scenario, postal savings schemes must ride their luck till the fixed deposit rates are raised.

SEE ALSO: Savings Schemes In Post Office

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