Finovate

Introduction

Saving is the key that unlocks true wealth. However, it’s also true that only saving won’t get you much. A huge part of saving is where you do it. If you were to store your income in cash at home, the value of that amount would decrease over time without providing any benefits. On the other hand, if you were to put your money in the right savings account, your financial growth would be significantly impacted.

India offers a buffet of saving options. From traditional bank savings accounts that give flexibility, to government-backed schemes tailored for long-term financial security, there is a path for everyone. Moreover, these methods of saving differ in terms of interest rates, withdrawal rules and tax benefits. Hence, its vital to play your cards carefully. So to tell you all about this, we will be delving into the topic of saving in this blog.

Different Savings Accounts in India:

There are namely two major categories of savings options:

Bank-Based Savings Accounts: Offered by public and private banks. Are flexible and easy to use. These are regular accounts you open at banks to store your money and earn a small interest.

Government-Sponsored Savings Schemes: Backed by the government of India. They are made for specific groups (e.g. : children, senior citizens). These schemes offer higher interest and tax benefits.

Here are a couple Bank-Based Savings Accounts:

Regular Savings Account: These are basic savings accounts from banks such as ICICI, SBI, HDFC and more. They are useful for daily use and small savings. Their interest rates usually span from 2.6% to 4.0% per annum, but some bank offer up to 6%, based on balance and conditions. Since these accounts are easily accessible, you can withdraw your money anytime. Additionally, you may require a minimum balance ranging from INR 1,000 to 10,000.

High-Interest Savings Account: These are also like regular savings accounts, but they offer higher interest rates. Banks like IDFC FIRST offer this type of account. The interest rates of these accounts range for 6% to 7.25% per annum. Two of the main features of High-Interest savings accounts are that they provide higher returns than usual and may require higher minimum balances or limited withdrawals. This type of savings account is best for those who desire to earn more interest without locking their money in a safe.

Now that you have read a bit about Bank-Based Savings Accounts, lets take a look at a few Government-Sponsored Savings Schemes:

Public Provident Fund (PPF): This is a government-run long-term plan where the interest rate sits at 7.1% per annum, compounded annually. Albeit having a lock-in period of 15 years; partial withdrawals are allowed after 7 years. The tax benefits include the interest and maturity being completely tax-free. On top of that, A contribution of up to (INR 150,000/ INR 1.5 Lakh)/ year is eligible. Meaning you can invest up to 1.5 Lakh in one year and this amount is not taxed from your income. So if your income is 8 lakhs per year, and you invest 1.5 lakhs in PPF that year, you are taxed on 6.5 lakhs and not 8 lakhs. This is because the amount invested in PPF can be subtracted from your income when calculating the tax you owe to the government.

Sukanya Samriddhi Yojana (SSY): This is a special scheme to save for a girl child below the age of 10 years. This scheme was launched as a part of the “Beti Bachao, Beti Padhao” (Save the daughter, Educate the daughter) campaign with the main purpose being to encourage parents to save money for the future education and marriage expenses of their girl child in a tax-free way. The interest rate of this scheme is 8.2% per annum and compounds annually. The lock in period is until the girl turns 21 years old or for marriage after 18. This is also a scheme where the entire maturity amount is tax-free.

Senior Citizens Savings Scheme (SCSS): Here we have a fixed-income savings scheme for people aged 60+, giving the likely retired population a safe way to earn regularly. The interest rate of 8.2% per annum is paid quarterly (every three months). Although there is a starting lock-in period of 5 years, it can by extended by another 3 years. Some features include tax deductions and taxable interest if interest exceeds INR 50,000/year. Reading all this, you could have probably guessed that this scheme is best for retirees who want a stable and regular income.

Remarks

As shown above, it is clear that India offers a wide range of savings options. From an account for daily-use to a scheme for senior citizens, there are a gamut of options for anyone and everyone. But I believe the key take-away or the moral of the story is that saving isn’t just putting money aside, it’s about making that seed of 1 lakh grow into a tree of crores.