When it comes to investing, fixed deposits and Sukanya Samriddhi Yojana are two commonly chosen avenues. To determine which option aligns better with your financial goals, conducting a thorough comparison of Sukanya Samriddhi Yojana vs FD is crucial. The Sukanya Samriddhi Yojana is a government program designed to benefit female children in families. Implemented under the ‘Beti Bachao, Beti Padhao’ campaign, this initiative enables parents or legal guardians to open a bank account in their daughter’s name. This privilege remains accessible until the girl turns 10 years old. Keep reading to get a deeper understanding of Sukanya Samriddhi Yojana vs FD.
What is Sukanya Samriddhi Yojana?
The government of India introduced Sukanya Samriddhi Yojana (SSY) as a savings scheme aimed at promoting the well-being of girls in the country. The main goal is to help parents create a financial safety net to support their daughters’ future expenses like higher education. By consistently contributing, you can slowly build a significant fund over time that can be used to achieve various life goals for your child.
The program is part of a larger effort by the government called Beti Bachao Beti Padhao Yojana, which was initiated in 2015 by the then Prime Minister Narendra Modi.
Prerequisites of Sukanya Samriddhi Yojana
Below are the prerequisites for Sukanya Samriddhi Yojana:
- Eligible Girl Child: Parents or legal guardians can open a Sukanya Samriddhi Yojana account in the name of a girl child anytime before she turns 10.
- One Account per Girl Child: A single Sukanya Samriddhi Yojana account can be opened for each female child.
- Limit on Number of Accounts: A maximum of two girl children can have accounts opened by a natural or legal guardian.
- Exception for Twins or Three Girl Children: To open a third account, it is required that twin girls are born as the second birth. Alternatively, if the first birth results in three girl children, then a certificate from competent medical authorities must be produced.
- Indian Citizenship and Residency: To open an account, the girl child must have Indian citizenship and reside in India. This status must be maintained from the time the account is opened until its maturity or closure.
Attributes and Benefits of Sukanya Samriddhi Yojana
Here are some key attributes and benefits of the Sukanya Samriddhi Yojana:
- High Interest: Sukanya Samriddhi Account offers a higher interest rate compared to other savings plans designed for the financial security of girl children. The government announces the applicable interest rate each fiscal year, and your investments accrue compound interest annually. Over time, the assets in your Sukanya Samriddhi Yojana account grow significantly due to the power of compounding.
- Significant Tax Savings: Contributions made to Sukanya Samriddhi Yojana for your daughter’s future are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. You can claim deductions of up to Rs 1.5 lakh invested in the scheme. Furthermore, the tax-saving benefits extend to the interest earned and the amount received upon maturity or withdrawals.
- Guaranteed Maturity Benefits: When your Sukanya Samriddhi Yojana account matures, the entire balance, including the accumulated interest, is directly given to the girl child or policyholder. This program enables your daughter to achieve financial independence and make her own life decisions when she reaches adulthood. Additionally, the savings keep earning compounded interest even after maturity until you decide to close the account.
What is a FD?
Fixed deposits, or FDs, are investment options offered by banks and non-banking financial companies to customers. In an FD, individuals invest a specific amount of money for a set duration at a predetermined interest rate. While the interest rate may differ from one financial institution to another, it generally offers higher returns compared to regular savings accounts. Fixed deposits offer various timeframes, ranging from short durations like 7-14 days to longer terms of up to 10 years. It’s essential to note that a fixed deposit is sometimes referred to as a “term deposit.”
Image tag: Benefits of a fixed deposit
Attributes and Benefits of FD
Fixed deposits present a range of attractive attributes and benefits, all of which are listed below:
- Varied Investment Tenures: The investment tenures for fixed deposits range from 7 days to 10 years, varying among different banks.
- Compounded Returns: Returns on the invested amount are compounded periodically – quarterly, annually, or monthly.
- Senior Citizen Advantage: Senior citizens receive returns that are 0.5% higher compared to regular investors.
- Withdrawal Flexibility: While premature and partial withdrawals are generally allowed, they might attract penalties.
- Renewal Option: The maturity amount can be reinvested in another fixed deposit.
- Assured Returns: Fixed deposits are a popular choice for individuals seeking a secure investment option. One of the advantages is the guaranteed rate of return, providing investors with peace of mind. Additionally, many banks offer convenient online fixed deposit interest calculators that allow individuals to estimate their potential earnings.
- Tax Threshold for Interest: Small deposit holders benefit from tax deductions on interest only when it exceeds the threshold outlined in income tax regulations.
- Flexible Tenure: When it comes to fixed deposit tenures, the flexibility lies in the hands of the deposit holder. Within the limits set by the bank, you have the authority to choose the duration that suits your preferences. This means that you can easily make decisions regarding extensions.
- Ease of Liquidation: Fixed deposits are relatively easy to liquidate, especially those booked online, which can be liquidated through net banking. Bank branches also offer an easy process for liquidation.
- Loans Against Fixed Deposit: In case of financial emergencies, fixed deposits can serve as reliable resources. Many banks offer loans against FDs, allowing individuals to borrow up to 95% of the FD amount. This makes fixed deposits a dependable investment option.
Differences Between Sukanya Samriddhi Yojana and FD
When comparing Sukanya Samriddhi yojana vs fixed deposit, it is clear that each has its advantages and limitations. The choice between the benefits of Sukanya Samriddhi account vs FD depends on yourfinancial goals and needs.
Outlined below are the key differences of both – FD vs Sukanya Samriddhi:
- Sukanya Samriddhi Yojana (SSY): The interest rate for SSY is determined by the central government every quarter. Currently, it stands at 8%.
- Fixed Deposit (FD): FD interest rates are set by the respective bank or NBFC and are subject to regular revisions.
- SSY: SSY is exclusively designed for a girl child, and parents or legal guardians can open an account for her shortly after birth. This scheme is available until the girl reaches 10 years of age.
- FD: Fixed deposit accounts can be opened by individuals who are 18 years or older, and parents also have the option to open FD accounts in their children’s names. Children can start enjoying the benefits of the account once they turn 18.
- SSY: To open an SSY account, you only need a minimum deposit of ₹250. However, please note that there is a maximum annual investment limit of ₹1.5 lakhs.
- FD: The minimum deposit amount for FDs varies among banks. For example, at Bajaj Markets, you can open an FD account with as little as ₹1,000.
- SSY: The lock-in period for SSY continues until the girl reaches 21 or gets married, whichever comes earlier. It also allows partial withdrawal for the girl’s higher education once she turns 18.
- FD: FDs offer flexibility in tenor, with options ranging from 7 days to 10 years, depending on the bank or NBFC.
- SSY: Premature withdrawals are possible under special conditions, such as the untimely death of the account holder.
- FD: FDs also allow premature withdrawals, but you may be required to pay a nominal penalty.
Both SSY and FDs offer tax-saving benefits. However, to avail of income tax exemption with FDs, you must choose a 5-year tax-saver FD.
- SSY: SSY accounts mature once the girl child reaches 21 or gets married, with no option for further extension.
- FD: FDs do not allow extension by default. The entire principal amount and interest earned are withdrawn at maturity. However, you can opt for automatic FD renewal to continue your investment.
In summary, choosing between Sukanya Samriddhi Scheme vs FD depends on your financial goals and needs. Each option has its advantages and limitations, so the decision should be based on your specific circumstances. Sukanya Samriddhi Yojana is a government-backed scheme specifically designed for the benefit of girl children. On the other hand, fixed deposits are versatile savings instruments that provide flexibility in tenor along with additional perks like loan provisions and nomination facilities. To make an informed choice between FD vs Sukanya Samriddhi, consider factors such as the beneficiary’s age, your investment horizon, and your risk tolerance.