Fixed Deposits (FDs) have long been a favorite among Indian investors seeking stable and guaranteed returns. However, with FD interest rates barely keeping pace with inflation and taxable earnings, many people are looking for better alternatives. If you’re searching for government-backed investment options with higher interest rates and tax-free earnings, this article is for you.
Below, we explore five government schemes that offer interest rates above 8% while ensuring zero tax liability on earnings. These schemes are secure, backed by the Government of India, and ideal for long-term wealth creation.
5 Government Schemes That Offer Higher Interest Than FD
| Feature | Details |
|---|---|
| Best Alternatives to FD | Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), Senior Citizens’ Savings Scheme (SCSS), Kisan Vikas Patra (KVP), and National Savings Certificate (NSC) |
| Highest Interest Rate | Sukanya Samriddhi Yojana (SSY) – 8.2% per annum |
| Completely Tax-Free Returns | PPF, SSY, and SCSS |
| Eligibility Criteria | Varies by scheme (age-based, gender-based, and general public options) |
| Investment Period | 5 years to 15 years (varies by scheme) |
| Government Backing | 100% safe, guaranteed returns |
If you’re looking for FD alternatives with higher interest and tax-free earnings, these five government-backed schemes are your best bet. They are safe, reliable, and offer better returns than traditional FDs. Whether you’re a retiree, salaried professional, or a parent planning for your child’s future, there’s a scheme for everyone.
1. Public Provident Fund (PPF) – The Ultimate Tax-Free Investment
Interest Rate: 7.1% per annum (compounded annually)
Investment Tenure: 15 years (extendable in blocks of 5 years)
Tax Benefits: Completely tax-free under Section 80C (EEE category)
PPF is one of the most popular and safe long-term investment options in India. It offers guaranteed returns, tax-free earnings, and government security, making it an excellent choice for both salaried and self-employed individuals.
Why Choose PPF?
- Risk-Free Investment: Backed by the Indian Government.
- Triple Tax Benefit: Contributions, interest, and maturity amount are tax-free.
- Partial Withdrawals: Allowed after 7 years for emergencies.
- Loan Facility: You can take a loan against your PPF balance after 3 years.
Who Should Invest?
- Salaried individuals looking for long-term tax-saving investment.
- Self-employed professionals who don’t have EPF benefits.
- Parents looking for a secure future for their children.
see also: Loan Against FD
2. Sukanya Samriddhi Yojana (SSY) – Best for Girl Child Savings
Interest Rate: 8.2% per annum (compounded annually)
Investment Tenure: Until the girl child turns 21 years old
Tax Benefits: Completely tax-free under Section 80C (EEE category)
This scheme was launched under the Beti Bachao, Beti Padhao initiative to secure the financial future of a girl child. It offers one of the highest interest rates among small savings schemes.
Why Choose SSY?
- High Interest Rate: 8.2% per annum – higher than most bank FDs.
- Tax-Free Maturity Amount: Zero tax liability on earnings.
- Lock-in Period with Flexibility: Partial withdrawal allowed for education expenses.
- Minimum & Maximum Investment: ₹250 to ₹1.5 lakh per year.
Who Should Invest?
- Parents of girl children looking for a secure and high-growth investment.
- Investors seeking safe and tax-free returns.
3. Senior Citizens Savings Scheme (SCSS) – Best for Retirees
Interest Rate: 8.2% per annum (compounded quarterly)
Investment Tenure: 5 years (extendable by 3 years)
Tax Benefits: Interest is taxable, but investment is deductible under Section 80C
Designed for senior citizens, SCSS is the best fixed-income investment option for retirees. It offers higher returns than bank FDs and government security.
Why Choose SCSS?
- Best for Retirees: Guaranteed high returns with government security.
- Quarterly Interest Payouts: Provides regular income.
- Premature Withdrawal Allowed: After 1 year with a nominal penalty.
- High Investment Limit: Up to ₹30 lakh per individual.
Who Should Invest?
- Retired individuals aged 60+ looking for a safe and high-return investment.
- Investors wanting a regular income stream.
4. Kisan Vikas Patra (KVP) – Double Your Money Safely
Interest Rate: 7.5% per annum
Investment Tenure: 10 years & 4 months (to double your money)
Tax Benefits: Interest is taxable, but there is no TDS on withdrawals
KVP is a risk-free investment scheme where your money doubles in 124 months. It is ideal for those seeking a guaranteed return with low risk.
Why Choose KVP?
- Double Your Investment: Assured returns.
- No Maximum Limit: Invest as much as you want.
- Easy Liquidity: Can be encashed after 2.5 years.
5. National Savings Certificate (NSC) – Secure, Fixed-Income Investment
Interest Rate: 7.7% per annum
Investment Tenure: 5 years
Tax Benefits: Eligible under Section 80C (interest is taxable)
NSC is a low-risk, fixed-income investment with government backing, ideal for those who want to build wealth securely.
see also: How to Take a Cheap Loan from Post Office RD: A Smart Way to Build Wealth
Government Schemes FAQs
1. Which scheme offers the highest interest rate?
- Sukanya Samriddhi Yojana (SSY) offers 8.2% per annum, the highest among government savings schemes.
2. Are these schemes safer than FDs?
- Yes, all these schemes are government-backed and 100% secure.
3. Can I invest in multiple schemes?
- Yes, you can invest in multiple schemes to diversify your savings.
4. Are these investments better than mutual funds?
- For risk-averse investors, these schemes are better as they offer guaranteed returns.
