The interest-rate cycle is on its way up, with the RBI raising repo rates, and the yields on 10-year government securities, too, going up.

Following this, the government has hiked the interest rates on various small savings schemes for the October-December 2018 period. The rate hike for the quarter across various instruments is to the extent of 0.4 percentage points.

For fixed-rate products including National Savings Certificate (NSC), Senior Citizen Savings Scheme (SCSS), and Post Office time and recurring deposits, the new rates announced each quarter apply only to the investments made in the quarter and hold till their maturity.

Within this category, the revised interest rates for the three- and five-year post office time deposits (7.2 per cent and 7.8 per cent, respectively) look attractive compared with the interest rates provided for bank fixed deposits of similar tenures. Public sector banks provide 6.5-6.8 per cent for 3-5-year deposits, while private banks offer 6.9-7.5 per cent. Five-year time deposits in the post office also qualify for tax deduction under Section 80C.

SCSS, which allows investments of up to ₹15 lakh, now offers a quarterly interest payout of 8.7 per cent. This is superior to Pradhan Mantri Vaya Vandana Yojana (PMVVY), which offers 8-8.3 per cent across monthly/quarterly/half-yearly/annual payout options for an investment of up to ₹15 lakh. However, while SCSS has a tenure of five years which can be extended, PMVVY is a 10-year product.

Variable-rate products such as Public Provident Fund (now offering 8 per cent) and Sukanya Samriddhi Scheme (8.5 per cent) also look attractive after the latest revision. Here, the rates keep changing across the tenure and the new rates announced each quarter will apply to the accumulated corpus for that quarter alone. These products fall under exempt-exempt-exempt category for tax purposes and hence provide more effective returns.

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