Government and bank saving schemes: lock-ins, interest and tax explained
PPF, Sukanya Samriddhi, SCSS, NSC, KVP, post office deposits and bank FDs: who each is for, how the interest is set, the lock-in, and the tax.
Most Indian families keep part of their savings in a government or a bank scheme — a PPF account opened years ago, a certificate bought at the post office, a deposit renewed every year at the bank. These are the plainest savings products in the country, and often the ones people know least precisely.
For each of the common ones, this page sets out who it is for, how the interest is set and when it reaches you, how long the money is tied up, what early exit costs, and how it is taxed. It names no product to choose.
What they have in common
PPF, the Sukanya Samriddhi Account, the Senior Citizens’ Savings Scheme, the National Savings Certificate, Kisan Vikas Patra and the post office deposits are small savings schemes run by the Government of India, through India Post and some banks as agents.
The interest is not negotiated with the post office. It is the rate the government sets each quarter, notified before the quarter begins. What differs is how that rate attaches to your money: in some, the rate on the day you open stays for the whole term, in others the balance earns whatever the current quarter’s rate is. Bank deposits are different again — each bank sets its own rate, fixed for that deposit’s term.
Which one suits a particular job is mostly a question of who the money is for and when it is needed.
For a child
Sukanya Samriddhi, for a girl child below ten on the day the account is opened, and PPF, which a guardian may open for a minor. Both run for fifteen years or more, and in both the interest and the maturity amount are exempt from tax.
For retirement
PPF while you are still earning, and the Senior Citizens’ Savings Scheme once you are sixty, which pays the interest out to you every quarter instead of adding it back to the deposit.
For a date five years out
The National Savings Certificate, the post office time deposit and the post office recurring deposit all run five years. A bank tax-saving deposit is the five-year version at a bank.
For money you may need sooner
An ordinary bank fixed deposit, which you can usually close on any day: it is repaid at the rate for the period it actually ran, less a penalty.
Public Provident Fund
Any resident individual may hold one account, and a guardian may open one for a minor. Someone who becomes a non-resident cannot open one, and an existing account runs to maturity without extension.
The rate is the one the government sets each quarter, applied to the lowest balance between the 5th and the last day of each month, compounded annually and credited at the end of March. Nothing is paid out along the way. The term is fifteen years from the end of the financial year in which you open, extendable at maturity in blocks of five years. You must put in at least ₹500 in a year and at most ₹1,50,000.
₹1,50,000
The most you can put into a PPF account in one financial year
At least ₹500 a year keeps the account active
Coming out early is deliberately difficult.
What early exit from a PPF account actually allows
A loan against the balance is possible from the third year to the sixth, and one partial withdrawal a year from the seventh. Closing it is allowed only after five complete years and only for stated reasons — a serious illness in the family, higher education, or a change in residence status — and the interest for the whole period is recalculated a percentage point lower.
The deposit qualifies under section 80C, inside the overall ₹1,50,000 limit for the year. The annual interest credit and the maturity amount are both exempt, so PPF is one of the few places where money is untaxed at all three stages.
Sukanya Samriddhi Account
This is for a girl child below ten years of age on the day the account is opened, operated by a parent or guardian. A family may hold two such accounts, or three where twins or triplets are involved.
The rate is the one the government sets each quarter, compounded annually. Deposits run for fifteen years from opening, at least ₹250 and at most ₹1,50,000 in a year, but the account matures twenty-one years from opening. For the six years in between you put nothing in and the balance keeps earning.
How a Sukanya Samriddhi account runs
- Before she turns ten The account is opened by a parent or guardian.
- Years 1 to 15 Deposits are made, from ₹250 to ₹1,50,000 in a year.
- Years 16 to 21 Nothing goes in, and the balance keeps earning.
- Age eighteen, or after class ten Up to half the previous year’s closing balance may be withdrawn for her education.
- Year 21 The account matures. It can be closed earlier on her marriage after eighteen.
The deposit qualifies under section 80C; the interest and maturity amount are exempt.
Senior Citizens’ Savings Scheme
Open to anyone aged sixty or above, to someone between fifty-five and sixty who retired on superannuation or voluntarily and opens the account within a month of the retirement dues, and to retired defence personnel from fifty.
The rate is fixed on the day you open and stays there for the whole five-year term, extendable in blocks of three years. It is paid out to you every quarter rather than added back to the deposit, which is the point of the scheme for most people who use it. You can put in from ₹1,000 up to ₹30 lakh across all your accounts under it.
₹30 lakh
The most you can hold across all your Senior Citizens' Savings accounts
Early closure costs you. Inside the first year no interest is payable and anything already paid out is recovered. Between one and two years, 1.5% of the deposit is deducted; after that, 1%.
The deposit qualifies under section 80C. The quarterly interest is fully taxable, with tax deducted at source above the threshold notified for the year. A resident senior citizen can set deposit interest against the section 80TTB deduction, which the Income Tax Department currently states as ₹50,000, again only under the old regime. That limit is fixed by each year’s Finance Act rather than settled once, so confirm the position for the financial year you are filing for on incometax.gov.in.
National Savings Certificate
Any resident individual can buy one, including for a minor, from ₹1,000 in multiples of ₹100. The rate is fixed when you buy and compounded annually, but you receive nothing until the end of the five-year term. Early exit is narrow: on the death of a holder, on forfeiture by a pledgee, or on a court order.
The amount you put in qualifies under section 80C. The interest accrues every year and is taxable that year even though you have not received it. For the first four years it is treated as reinvested, so it can itself be claimed under section 80C; the fifth year’s interest has no matching deduction. No tax is deducted at source, which does not mean it is untaxed — you declare it.
Kisan Vikas Patra
Any resident individual can buy one, and no deduction is attached to it. The rate is fixed when you buy and compounded annually, received only at maturity. The term is notified each quarter and set so that the amount you put in becomes twice as much on the maturity date. It has been a little over nine years recently, but check the figure for your quarter, because the rate and the term both change.
Nothing can be taken out before two and a half years, except on the death of a holder, a court order or forfeiture by a pledgee. The interest is fully taxable with no tax deducted at source, so it is on you to declare it.
Post office recurring deposit
For putting aside a fixed amount every month rather than a lump sum, from ₹100 a month in multiples of ₹10. The rate when you open is fixed for the five years, compounded quarterly and paid with the principal at maturity. The term can be extended by five more years.
Miss a month and a small default fee is charged with the next instalment; miss too many and the account is discontinued. Premature closure is allowed after three years, and the interest is then paid at the post office savings account rate, removing most of the benefit of waiting.
There is no deduction for the instalments, and the interest is taxable, with tax deducted at source above the notified threshold.
Post office time deposit
A lump sum for a term you choose: one, two, three or five years, each with its own rate set quarterly, from ₹1,000 upwards. The rate when you open is fixed for your term. Interest is calculated quarterly but paid out to you once a year, so it is not compounded back into the deposit.
What closing a post office time deposit early costs
Nothing can be withdrawn in the first six months. Closed between six and twelve months, you get the post office savings account rate; closed later, the interest for the completed years is reduced by two percentage points.
Only the five-year time deposit qualifies under section 80C. The interest is taxable in the year it is paid to you.
Bank fixed deposits
Anyone with a bank account can open one, for seven days to ten years. Your bank sets the rate, not the government, and it is fixed once the deposit is booked. You usually choose whether the interest is paid out monthly or quarterly, or added back and paid with the principal at maturity. Most banks give resident senior citizens a small additional rate.
Closing early is usually possible on any day. The deposit is repaid at the rate for the period it actually ran, and most banks also deduct a penalty of half to a full percentage point. The exception is the designated five-year tax-saving deposit, which cannot be withdrawn early and is the only bank deposit qualifying under section 80C.
The interest is taxable in the year it accrues, including on a cumulative deposit where you have received nothing yet. Your bank deducts tax at source once the interest it pays you in a year crosses the threshold notified for the year, counted separately for each bank. The threshold is a different figure for a resident senior citizen, and both are set by each year’s Finance Act rather than fixed once, so take the current numbers from the Income Tax Department rather than from memory: confirm the position for your financial year on incometax.gov.in. If your income is below the taxable limit, file Form 15G, or Form 15H for a senior citizen, so nothing is deducted.
₹5 lakh
Deposit insurance per depositor per bank, principal and interest together
Deposit Insurance and Credit Guarantee Corporation
Side by side
| Scheme | Term | Interest reaches you | Interest taxed |
|---|---|---|---|
| PPF | 15 years | At maturity | Exempt |
| Sukanya Samriddhi | 21 years | At maturity | Exempt |
| Senior Citizens’ Savings | 5 years | Every quarter | Taxable |
| National Savings Certificate | 5 years | At maturity | Taxable |
| Kisan Vikas Patra | As notified | At maturity | Taxable |
| Post office recurring deposit | 5 years | At maturity | Taxable |
| Post office time deposit | 1 to 5 years | Once a year | Taxable |
| Bank fixed deposit | 7 days to 10 years | As you choose | Taxable |
Lock-in versus access
A long lock-in is not a flaw and easy access is not a virtue.
They are two different jobs, and the mistake is asking one scheme to do both.
Money you may need at short notice — a hospital bill, a job gap, a repair — has one requirement: that it is there on the day you ask. A deposit you can close in a day at a modest cost meets that. A fifteen-year account does not, and its exit routes are for emergencies, not convenience.
Money with a date already attached — a school fee due in three years, a daughter’s education, your own retirement income — can take a lock-in, because a lock-in only costs you something if you have to break it.
The useful question is not “how long is this locked?” It is “what date do I need this money, and does the scheme end before it or after?”
A deduction, finally, is a reason to prefer one eligible scheme over another, not a reason to lock money you expect to need.
Where to check things for yourself
The current quarter’s rates and the full rules of every post office scheme are published by the government, and any rate you were quoted should match.
A sensible next step is not a new deposit
- List what you already hold — every account, deposit and certificate, in one place.
- Note the maturity date and the rate on each one, so a renewal does not catch you out.
- Check the nominee is recorded against every one of them.