Savings Bank Account, Recurring Deposit, PPF, NSC etc.

Savings Bank Account

A savings account is an interest-bearing deposit account held at a bank or other financial institution. Though these accounts typically pay a modest interest rate, their safety and reliability make them a great option for parking cash you want available for short-term needs.

People deposit funds in savings account for a variety of reasons, including a safe place to hold their cash. Savings accounts normally pay interest as well: almost all of them accrue compound interest over time. Several countries require savings accounts to be protected by deposit insurance and some countries provide a government guarantee for at least a portion of the account balance.

There are many types of savings accounts, often serving particular purposes. These can include accounts for young savers, accounts for retirees, Christmas club accounts, investment accounts, and money market accounts. Some savings accounts also have other special requirements, such as a minimum initial deposit, deposits made regularly, and notices of withdrawal.

Some savings accounts require a minimum balance in order to avoid monthly fees or earn the highest published rate, while others have no balance requirement. Know the rules of your particular account to ensure you avoid diluting your earnings with fees.

Money can be transferred in or out of your savings account online, at a branch or ATM, by electronic transfer, or direct deposit. Transfers can usually be arranged by phone, as well.

Recurring Deposit

A recurring deposit is a special kind of term deposit offered by Indian banks which help people with regular incomes to deposit a fixed amount every month into their recurring deposit account and earn interest at the rate applicable to fixed deposits. It is similar to making fixed deposits of a certain amount in monthly installments. This deposit matures on a specific date in the future along with all the deposits made every month. Recurring deposit schemes allow customers an opportunity to build up their savings through regular monthly deposits of a fixed sum over a fixed period of time. The minimum period of a recurring deposit is six months and the maximum is ten years.

The recurring deposit can be funded by standing instructions which are the instructions by the customer to the bank to withdraw a certain sum of money from his/her savings/current account and credit to the recurring deposit account.

When the recurring deposit account is opened, the maturity value is indicated to the customer assuming that the monthly installments will be paid regularly on due dates. If any installment is delayed, the interest payable in the account will be reduced and will not be sufficient to reach the maturity value. Therefore, the difference in interest will be deducted from the maturity value as a penalty. The rate of penalty will be fixed upfront. Interest is compounded on quarterly basis in recurring deposits.

One can avail loans against the collateral of a recurring deposit up to 80 to 90% of the deposit value.

The rate of interest offered is similar to that of fixed deposits.

Features of a Recurring Deposit Account

• Recurring Deposit schemes aim at inculcating a regular habit of saving in people
• The minimum amount for deposits often varies from one bank to another. You could invest with an amount as small as Rs. 1000.
• The minimum period of deposit is six months, while the maximum period of a deposit is 10 years
• The rate of interest is equivalent to that offered for a Fixed Deposit. Therefore, the interest rates are higher than Savings Account.
• Premature withdrawals are However, depending on the bank, they may allow you to close your account before the maturity period on certain conditions.
• A Recurring Deposit can be funded periodically through Standing Instructions that are usually instructions given by the customer to the bank, to credit the RD account every month from his/her Savings or Current Account.

PPF

Public Provident Fund (PPF) scheme is a long term investment option that offers an attractive rate of interest and returns on the amount invested. The interest earned and the returns are not taxable under Income Tax. One has to open a PPF account under this scheme and the amount deposited during a year will be claimed under section 80C deductions.

Importance:

• PPF is a government-backed scheme, and the investment is also not market-linked. Due to this, it offers guaranteed returns to protect the investment needs of many people.
• PPF account is one of the best investment options for individuals who have a low-risk appetite.
• As the returns from PPF accounts are fixed, they are used as a diversification tool for the investor’s portfolio. Additionally, they also offer tax-saving benefits.

NSC

The NSC scheme is available at all NSC post offices and the Indian Government promotes the NSC scheme. Due to the number of post offices present in India and the easy access to these post offices, the scheme has become very popular in India.

The main aim of the scheme is for individuals to make small or medium savings, and tax benefits are provided for these savings. Since the scheme is encouraged by the Indian Government, the risks of investing in the scheme are low.

The scheme was launched mainly for individuals; therefore, non-resident Indians (NRIs) and Hindu Undivided Families (HUF) are not eligible to opt for this scheme. Only Indian citizens will be able to invest in the NSC scheme.

• Minimum investments: The minimum amount that a certificate can be purchased for is Rs.100. The different denominations that the certificate can be purchased for are Rs.10,000, Rs.5,000, Rs.1,000, Rs.500, and Rs.100. Initially, small investments can be made, and individuals can increase investments when feasible.
• Maturity tenure: 5 years and 10 years are the two maturity periods of the scheme that individuals can choose from.
• Rate of interest: Currently, the rate of interest has been reduced from 7.9% to 6.8%. and it is compounded on an annual basis. However, the interest is payable only at maturity. For example, investment of Rs.100 will get the subscriber Rs.146.93 after 5 years of investment.
• Nominations: Family members including minors can be added as nominees by the investor. In case the investor passes away during the tenure of the scheme, the nominee will be able to inherit the scheme.
• Different types of NSC: Initially, the NSC IX Issue and the NSC VIII Issue were the two types of certificates available. However, as of December 2015, the Government of India stopped the NSC IX Issue. Therefore, only the NSC VIII Issue is available.
• Loans against NSC: The NSC can be used as a security or collateral and can be provided to banks to avail loans. However, the respective post master must authorise the transfer of the certificate to the bank.
• Purchase of NSC: Upon submitting the required documents, the scheme can be purchased at post offices.
• Transfer of certificate: Transfer of NSC is possible from one post office to another. Transfer of certificate from one individual to another is also possible. However, the certificate will remain the same and the name of the new owner shall be written on the certificate and the name of the old owner will be rounded.

Advantages of NSC

• One of the main advantages of investing in the NSC is the tax benefits that individuals can avail on the investments they have made. The returns are also guaranteed under this scheme. Many individuals prefer the NSC scheme as it can provide a regular income once they retire.
• Except for the interest that is earned in the final year, the remaining interest that is generated is tax-free.
• In case individuals lose the original certificate, a duplicate certificate can be obtained.
• Even after the maturity period, individuals have an option to continue investing in the scheme.
• Transfer of the certificate is allowed from one individual to another. However, it is allowed only once during the lock-in period.
• The interest that is generated is compounded on a yearly basis and reinvested towards the scheme. Therefore, the invested amount of the individual increases without purchasing certificates.