“Post office savings bank” and friends “small savings schemes”
No complex market-linked variable returns, no surprises.
I have a soft corner for Post Office Savings Bank — My first account was a Post Office Account opened through my school. I put a little amount every month via my teacher. Looking into the rules now, I realize that this was a “Sanchayika” ( School banking ) account. This account, in my opinion, is a wonderful way for kids to get an early start on managing money.
“Post Office Savings Bank” and other “Small Savings Schemes” have done a lot for financial inclusion in India. All that has been done is often forgotten and ditched for fancy new Fintech schemes.
History
The Post Office Savings Account came into existence in 1882 (~137 years ago). RBI, on the other hand, was born in 1935. Post Office Savings Account is one of the National Savings Schemes operated by the Government of India. The National Savings Institute (created in 1948) under the Department of Economic Affairs is tasked with running the various National Savings Schemes of India.
National Savings Schemes
The products under the scheme are all designed to be comprehended easily. There are no complex market-linked variable returns, no surprises.
Post Office Savings Account
- Simpler alternative to a regular bank account
- Opened with 20 INR ( 0 INR if receiving government benefits ), 500 INR for accounts with Cheque Facility
- Interest earned at par with bank interest for tax treatment
- 4 % on the lowest balance in the account between the 10th day and the end of the month. Credited annually.
- No limits on maximum balance
- “Sanchayika” ( School banking ) account is a type of Post Office Savings Account
Post Office Monthly Income Account
- Monthly interest payout to the customer’s Post Office Savings Account
- Opened with 100 INR, Maximum of 4,50,000 INR per depositor.
- Holding period of 5 years. Premature closure penalty of 2% of deposit if withdrawn < 3 years, 1% from 3–5 years.
- 7.6% (Oct-Dec 2019) annual interest paid monthly. 2850 INR/month for 4,50,000 INR deposited.
Maybe it is time to revisit the maximum limit on this account, considering the current cost of living.
Post Office Recurring Deposit
- A simple way of saving money monthly.
- Opened with a minimum of 10 INR ( with 5 INR multiples )
- Subsequent deposits every month need to be equal to the first deposit
- Maturity period of 5 years
- Incentives for advance deposits ( Encourages saving of surplus )
- 7.2 % (Oct-Dec 2019) annual interest on deposits
- A loan up to 50% of the existing balance is allowed after 1st year
Post Office Time Deposit Account ( Fixed Deposit )
- A simple way of putting away money for a fixed time.
- Opened with a minimum of 100 INR with duration of 1–5 years
- Half-yearly compounding interest
- 5 Year time deposits qualify for tax rebate under 80c of Income Tax
- Premature closure with some interest rate penalty
- Interest earned at par with bank interest for tax treatment
Senior Citizen Savings Scheme
- High yield time deposit account for senior citizens
- Opened with a minimum of 1000 INR, Maximum of 15,00,000 INR per depositor
- Holding period of 5 years. Extension in 3-year blocks.
- 8.6% (Oct-Dec 2019) annual interest on deposits paid every quarter. 32,250 INR/Quarter on 15,00,000 INR deposited.
- Deposits qualify for tax rebate under 80c of Income Tax
Maybe it is time to revisit the maximum limit on this account, considering the current cost of living.
Public Provident Fund Account
- High yield account promoting saving for the long term.
- Opened with a minimum of 500 INR, Maximum of 1,50,000 INR per year per depositor
- Holding period of 15 years. Extension in 5 — year blocks.
- Loan facility from 3rd year to 6th year
- One withdrawal per year from 7th year
- Deposits qualify for tax rebate under 80c of Income Tax
- Interest is exempt from Income Tax under Sec-10(15 of the Income-tax Act).
- The amount in the account is not subject to attachment under any order or decree of a court.
- 7.9 % (Oct-Dec 2019) on the lowest balance in the account between the 5th day and the end of the month. Credited annually.
- 1,50,000 INR deposited every year will lead to 43,60,517 INR in 15 years.
National Savings Certificate (VIII Issue)
- Tax saving instrument with initial deposit and interest accrued up-to 1,50,000 qualifying for tax rebate under 80c of Income Tax
- Opened with a minimum of 100 INR
- Holding period of 5 years
- 7.2 % (Oct-Dec 2019) annual interest accrued on deposits
- Loan facility by pledging the certificates
- Interest accrued is considered for tax rebate for the next year
Kisan Vikas Patra
- Designed as an instrument to double the money in 113 months ( Oct-Dec 2019 )
- Opened with a minimum of 1000 INR
- Transfer of the certificate allowed between people
- Can be encashed after 2.5 years if needed
- Loan facility by pledging the certificates
Sukanya Samridhhi Account
- Designed for supporting education and financial independence of girl child
- A minimum of 250 INR, Maximum of 1,50,000 INR per year per girl child
- Can be opened in the name of a girl child under the age of 10 years
- One withdrawal of 50% permitted for meeting education expenses when the account holder reached 18 years of age.
- Account matures on completion of 21 years or on marriage of account holder whichever is earlier.
- Deposits qualify for tax rebate under 80c of Income Tax.
- 8.4 % (Oct-Dec 2019) annual interest accrued on deposits
Where does the money in these schemes go?
National Small Savings Fund receives all the National Savings Scheme deposits. The fund carries a sovereign guarantee.
The money in National Saving Scheme Fund is:
- Given out as loans to the state government
- Lent to infrastructure companies, agencies fully owned by central government
- Invested in central government securities
How are the schemes distributed?
Distributed through ~1,54,000 Post offices, branches of all nationalized banks, Axis Bank, ICICI Bank, and HDFC Bank. ~110000 Women agents appointed to canvas for the 5-year Recurring Deposit Scheme.
I could not find the commission structure of these agents or the banks distributing the scheme. I have raised an RTI request to find out more.
As of February 2019 — the Post Office Savings Bank accounts had a total deposit size of 1,34,863 Crore INR. The Pradhan Mantri Jan Dhan Yojana ( PMJDY ) accounts, on the other hand, had a total deposit size of 93,567 Crore INR. All the Small Savings Schemes together had about 8,99,191 Crore INR in them (~5% of India’s GDP).
I feel that the National Small Saving Schemes do a great job of being understandable by most of India. Maybe a straight forward agent on-boarding, like in the mutual fund industry coupled with digital distribution could do wonders for Financial Inclusion.
Post Office Savings Bank and India Post Payments Bank ( Soon to be Small Finance Bank)
These are two separate entities with different institutions overseeing them. Heck, the KYC norms are different for both.
One draws its powers from “The Government Savings Banks Act, 1873” and the other from “Reserve Bank of India Act, 1934”.
Post office allows linking of these two accounts, India Post Payments Bank feeds into Post Office Savings Bank account after crossing the 1,00,000 INR Payments Bank deposit limit.
Tidbit: Anchal post service started in the kingdom of Travancore and Cochin before Independence of India ( and later merged with India post in 1951) also had a savings bank account. The Government Savings Banks Act, 1873, explicitly excludes the deposits in the Anchal Savings Bank.
Closing
The Post Office seems like a very natural way of delivering financial products. Local communities probably place greater trust in their local Post Office employees they are familiar with than a faceless mobile app/QR code. It also helps that the Small Savings Schemes are extremely simple to understand.
Digitally distributed Small Savings Schemes serviced via the Post Office seems like a great way to improve financial inclusion.
I enjoy visiting the Koramangala 1st block post office, probably because of how calm the place is. The postman in Koramangala 1st block is more professional than I will ever be. I just like receiving posts, ok.
