FDs vs Small Savings Schemes: Which One Offers Better Returns in 2025?

If you’re a conservative investor, chances are you’ve considered Fixed Deposits (FDs) for their safety and assured returns. However, government-backed small savings schemes, like those from the post office, often offer better interest rates, especially for long-term investments. Let’s take a closer look at how these two options compare in terms of returns and tax benefits.

What Returns Do Bank FDs Offer?

Most leading banks currently offer interest rates between 6.6% and 7.1% per year on 1-year FDs. These rates have slightly decreased after the repo rate cut on April 9.

Also Read, Old vs New Tax Regime: Which One Should You Choose Before Filing Your ITR?

One-year FD interest rates:

• SBI: 6.7%

• HDFC Bank: 6.6%

• ICICI Bank: 6.7%

• Kotak Mahindra Bank: 7.1%

Keep in mind that interest rates may vary depending on tenure and market conditions.

How Much Do Small Savings Schemes Offer?

Post office schemes usually offer higher interest rates, especially for longer tenures. Here’s what different schemes offer currently:

Clearly, some small savings schemes provide significantly better returns than regular bank FDs, especially for senior citizens and long-term savers.

What About Tax Benefits?

Fixed Deposits:

• Interest is taxable and added to your total income.

• No special tax benefits under the new tax regime.

• Only 5-year tax-saving FDs qualify for deduction under Section 80C (old regime only).

Small Savings Schemes:

• Many schemes like PPF, Sukanya Samriddhi, and Senior Citizen Schemes offer Section 80C benefits (under old regime).

• Interest from PPF is tax-free.

• Under the new tax regime, 80C benefits do not apply, but interest remains more tax-friendly than FDs.

Which One Should You Choose?

• If safety and short-term liquidity are your priorities, bank FDs may work better.

• If you’re planning for long-term goals (like retirement or your child’s education), small savings schemes offer higher returns and better tax advantages.

• Senior citizens can benefit more from schemes tailored for them, like the Senior Citizen Savings Scheme.

Final Thought

Both FDs and small savings schemes are reliable and safe investment options. Your choice should depend on your financial goals, time horizon, and whether you’re under the old or new tax regime. A mix of both can also help you balance returns and flexibility.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.     

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.