While we were in our teens, all of us wished to do a job for financial independence. However, as time passed, we realized financial autonomy comes with many responsibilities. We are not only responsible for our expenses but also for our family members who depend on us financially. As a result, we realized the importance of savings.
Many people think that cutting down on expenses will suffice to save money. But, this is not the best way of building a saving corpus. Instead, investing in the best saving schemes is the right way to save money.
Importance Of A Savings Scheme
Many people refrain from investing in saving schemes since they imagine they can keep more without it. Below are the reasons for investing in the best saving schemes and why it is essential.
1. You Get Returns
Investing in saving schemes does not simply mean putting your money and getting the same amount back on maturity. Several saving schemes offer returns in the form of interest. These saving schemes have a defined interest rate, according to which returns are calculated. These returns further increase through the power of compound interest.
2. You Can Generate A Corpus Faster
It takes many years to reach your investment target and the ideal savings amount that is sufficient for your financial needs. Investing in saving schemes might help you achieve that desired investment goal much faster. It is not a good idea to just depend on your paychecks or save rigorously. Combine the habit of saving with making investments in the best saving schemes to reach your investment goals in a short time.
3. Investment Safety
Investment safety concerns many investors, especially those who prefer minimal risk but expect a dependable savings corpus. To their relief, most of the saving schemes are government-backed, making them a safe investment choice. Additionally, as these schemes pay a fixed interest rate, there is no market risk.
4. Ensures Retirement Savings
It is easy to support the finances while working, but what happens after your retirement? Everyone would have retirement plans that require money. Investing in the best saving schemes can save you by offering you an adequate amount at maturity that can be used for retirement funds.
5. Helps To Save Tax
Under Section 80C of the Income Tax Act, you can claim a tax deduction of up to INR 1.50 lakh by investing in various long-term saving schemes. Therefore, apart from helping you build a sizable savings fund, these investments can also help you reduce your income tax liability.
The Best Saving Schemes That Might Be Considered
Now, you gotta know why investing in saving schemes is necessary. So, you should also know the best saving schemes to invest in, which might be considered. Such saving schemes are mentioned and explained below.
1. Public Provident Fund (PPF)
Public Provident Fund (PPF) is a government-backed long-term saving scheme introduced with the main objective of helping individuals generate retirement savings. It requires a minimum deposit of INR 500 and a maximum deposit of INR 1.50 lakh in a financial year. This savings scheme matures after 15 years, which can be increased in blocks of 5 years post-maturity. In addition, the interest earned from and the maturity amount received from this saving scheme is also tax-free under Section 10 of the Income Tax Act.
2. Senior Citizen Savings Scheme (SCSS)
As the name says, the Senior Citizen Savings Scheme (SCSS) is mainly suitable for senior citizens who look for investment security and regular income to meet the financial needs of their retirement life. The low risk and the high-interest rate offered by SCSS make it one of the best saving schemes available.
Individuals at least 60 years old are eligible to invest in the Senior Citizen Saving Scheme. Alternatively, individuals who have subscribed to the Voluntary Retirement Scheme or Superannuation and aged 55 years or older can also subscribe to this scheme.
The SCSS requires a minimum deposit of INR 1000 at the time of account opening and a maximum deposit of INR 15 lakhs in this account. The scheme has a 5-year maturity period that can be extended by three years after maturity if the subscriber wishes.
3. Post-Office Monthly Income Scheme
Post Office Monthly Income Scheme is a savings scheme introduced for subscribers who prefer risk-free investments that provide guaranteed returns. The individual needs to set up an account in the post office to invest in this scheme. The saving scheme requires a minimum investment of INR 1000, with a maximum limit of INR 4.5 lakh for an individual account and INR 9 lakh for a joint account. It is one of the best saving schemes offering interest payable monthly. Subscribers can earn an interest of 6.6% in the saving scheme as of April 2022.
4. National Savings Certificate (NSC)
NSC or National Savings Certificate is one of the best savings schemes that offer tax deduction benefits and can be set up through any post office. The government-backed savings scheme aims to encourage investors belonging to the small and middle-income categories.
An NSC can be bought for a specific amount of money and offers a pre-determined amount to the investor at maturity. The interest from NSC is paid to the investors at the time of maturity. National Saving Certificate invites a minimum deposit of INR 1000 and has no maximum deposit.
Any individual above 18 years can invest in this tax-saving investment. NSC investments can also be made on behalf of the minor by a parent or guardian. Additionally, NSC can also be used to secure loans through banks.
5. Recurring Deposit (RD)
Recurring Deposit (RD) is the term deposit provided by banks. It is one of the best saving schemes that is ideal for those investors who can make regular deposits to create a significant investment corpus over time. The subscriber has the flexibility to choose the deposit amount and the investment tenure when setting up the RD account.
Recurring Deposit doesn’t have a fixed interest rate determined by the government. As a result, the rate of interest varies from bank to bank. Simultaneously, the tenure for RD also impacts the interest rate of this investment. Currently, bank RD tenure can range from 7 days to 10 years.
Being a savings scheme that pays interest to the subscribers, returns from RD are pre-determined and guaranteed.
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