If you want to protect your hard-earned money and earn steady returns in 2026, this news is for you. Investors are often confused about whether they should invest in bank Fixed Deposits (FDs) or Post Office Small Savings Schemes like PPF, NSC, and KVP. While bank FDs offer flexible short-term investments, government small savings schemes offer the surety of tax exemptions and guaranteed high interest rates.
FDs and Small Savings Schemes
Fixed deposits have always been a preferred option among retail investors. The biggest reason for this is that banks offer different interest rates for different tenures, making it easier to invest for shorter periods.
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On the other hand, schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC), and Kisan Vikas Patra (KVP) are directly backed by the Government of India. The government has not made any changes to the interest rates of these steel schemes for the March 2026 quarter, making them still quite attractive to investors compared to bank FDs.
Interest Rate Difference
The primary objective of any investment is to generate excellent returns. Currently, most major banks offer interest rates ranging from 6.25% to 6.80% on 1- to 3-year FDs. In select banks, this rate can go as high as 7.10%.
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On the other hand, if you look at government small savings schemes, interest rates range from 6.9% to 8.2%. This means that government schemes have a strong lead over bank FDs in terms of net interest. For example, the 8.2% interest rate offered by the Sukanya Samriddhi and Senior Citizen Schemes is much higher than any safe bank FD.
Current Interest Rates for Small Savings Schemes 2026
Before investing, take a look at these impressive rates. Sukanya Samriddhi Yojana (SSY) and Senior Citizen Savings Scheme (SCSS) both lead the way with impressive rates of 8.20%. Next, the National Savings Certificate (NSC) offers a steady return of 7.70%.
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Among other schemes, the Mahila Samman Savings Certificate and Kisan Vikas Patra (KVP) both offer 7.50% interest. The Post Office Monthly Income Scheme (MIS) is yielding 7.40%, and the Public Provident Fund (PPF) is yielding 7.10%. For the medium term, Post Office Time Deposits offer steady returns of 6.9% to 7.5%, and RDs offer 6.70%.
Lock-in Period
While government schemes offer higher interest rates, their lock-in periods are a bit stricter. NSC has a fixed lock-in period of 5 years, while PPF is a long-term plan of 15 years, which creates a solid fund for retirement.
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In contrast, bank FDs offer incredible flexibility. You can choose from a tenure of 7 days to 10 years and can also withdraw funds prematurely in case of an emergency. Although banks charge a small penalty for premature withdrawals, this is a better option for liquidity.
Impact on Your Pocket
Tax on investment earnings is a major factor that cannot be ignored. Interest earned on FDs is added to your annual income and taxed according to your tax slab. Furthermore, banks deduct TDS if the interest exceeds a certain limit.
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On the other hand, small savings schemes have a significantly lower tax burden. Schemes like PPF have ‘EEE’ status, meaning the investment, interest, and maturity amount are all tax-free. NSCs also offer tax exemptions, making them a viable tax-saving tool.