FDs or Small Savings Schemes, Which Offers Better Returns on Safe Investments?

If you want to avoid risk in your investments and ensure your money is safe, you have several reliable options in India. Fixed Deposits (FDs) have long been a preferred choice for investors, but government-backed small savings schemes have also emerged as strong alternatives. Schemes like the Public Provident Fund, Sukanya Samriddhi Yojana, National Savings Certificate, Kisan Vikas Patra, and Senior Citizen Savings Scheme are not only secure but also offer better returns in many cases.

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Why the Government Didn’t Change Interest Rates

The central government has decided to keep the interest rates on small savings schemes unchanged for the fourth quarter of the financial year 2025-26. According to the government notification, the same interest rates will apply to all these schemes from January 1, 2026, to March 31, 2026, as were applicable in the previous quarter. This will directly benefit investors who have already invested in these schemes or are planning to invest now, as there will be no uncertainty regarding returns.

Interest Rates on Small Savings Schemes from January to March 2026

During this period, the Sukanya Samriddhi Yojana and Senior Citizen Savings Scheme are offering an annual interest rate of 8.2 percent, making these schemes very attractive. The Public Provident Fund offers 7.1 percent, the National Savings Certificate offers 7.7 percent, and the Kisan Vikas Patra offers a return of 7.5 percent. In comparison, the interest rates on fixed deposits of most banks are limited to around 6 to 7 percent.

Which is Ahead in Terms of Interest Rates?

If we consider only the return perspective, small savings schemes appear to perform slightly better than bank FDs. This difference is quite significant, especially for investors who want to invest for the long term. The government guarantee and stable interest rates of these schemes provide additional confidence to conservative investors.

The Difference in Lock-in Period and Liquidity

The biggest strength of fixed deposits is their liquidity. It can be broken prematurely if needed, although this may incur some penalties. On the other hand, money invested in small savings schemes remains locked in for a longer period. PPF has a 15-year lock-in period, and NSC has a 5-year tenure. For investors who might need access to their money unexpectedly, FDs prove to be a more practical option.

Which is more beneficial from a tax perspective?

When it comes to tax planning, small savings schemes have a clear advantage. The interest earned on bank FDs is fully taxable and is taxed according to your income tax slab. In contrast, the interest earned from PPF and some other schemes is tax-free, which makes the real return significantly better.

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What should be the right investment strategy?

Financial experts believe that investors should not choose between FDs and small savings schemes, but rather use a balanced approach with both. PPF is better for long-term goals and tax-free returns, NSC can be useful for medium-term needs, while FDs are considered most suitable for emergency funds and short-term requirements. Investing with the right mix ensures a balance between security and returns.