Investment 2026: Small Savings Schemes vs FDs – Where Will You Earn More?

Kokila Chokkanathan
Investors looking for safe and steady returns often compare government-backed small savings schemes with bank fixed deposits (FDs). With the latest notification from the Finance Ministry, interest rates for small savings schemes have been kept unchanged for the seventh consecutive quarter, starting january 1, 2026. Let’s break down how these options compare.

Small Savings Schemes

The government continues to offer stable returns through small savings schemes, which are popular among conservative investors. Key schemes include:

Public Provident Fund (PPF)

Long-term savings scheme with a tenure of 15 years, extendable in blocks of 5 years.

Interest rate: Remains unchanged for the fourth quarter of FY 2025-26 (as per notification).

Tax benefits: Contributions are eligible for tax deduction under Section 80C, and interest earned is tax-free.

National Savings Certificate (NSC)

Medium-term investment with a tenure of 5 years.

Offers fixed interest rates, compounded annually.

Tax benefit: Investment is eligible for Section 80C deduction, though interest is taxable.

Other Small Savings Options

Kisan Vikas Patra (KVP), Sukanya Samriddhi Yojana (SSY), Senior Citizens Savings Scheme (SCSS), etc.

Interest rates are reviewed quarterly, but currently remain unchanged.

Fixed Deposits (FDs)

  • Bank FDs are another popular safe investment option.
  • Interest rates: Vary by bank and tenure; typically lower for short-term deposits and higher for long-term deposits.
  • Taxation: Interest earned is taxable as per your income slab, which reduces effective returns for high-income investors.
  • Liquidity: FDs can be broken before maturity, but penalties may apply.
Where Will You Earn More?

Investment Option

Interest Rate (approx.)

Tax Benefit

Liquidity

Ideal For

PPF

~7–7.5% (government notified)

Tax-free

Low (15-year lock-in)

Long-term savings & retirement

NSC

~6.8–7%

Tax deduction

Medium (5 years)

Medium-term secure investment

Bank FD

6–7% (depends on bank & tenure)

Taxable

High (can break early)

Short to medium-term savings with liquidity

Key Takeaways:

PPF offers the highest effective return because interest is tax-free, even if the nominal rate is similar to FDs.

NSC is a good medium-term option with tax benefits, but interest is taxable.

FDs provide flexibility and quicker access to funds but may be less tax-efficient.

Small savings schemes are safer and government-backed, making them more suitable for risk-averse investors.

Conclusion

For conservative investors, government small savings schemes like PPF or NSC often provide better returns than traditional FDs, especially after factoring in taxes. FDs remain a convenient option for those who value liquidity.


 

Disclaimer:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.

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