What are Small Savings Instruments?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : What are the small saving instruments

Mains level : Paper 3- Slashing of interest rates on small savings instruments

The government has sharply slashed the rates on all small savings instruments for the first quarter of 2021-22 (Update: The order has been slashed now)

What is the news?

  • The government has sharply slashed the rates of return on the Public Provident Fund down from 7.1% to 6.4% and effecting cuts ranging from 40 basis points (0.4%) to 110 basis points (1.1%).

What are Small Savings Instruments?

  • Saving schemes are instruments that help individuals achieve their financial goals over a particular period.
  • These schemes are launched by the Government of India, public/private sector banks, and financial institutions.
  • The government or banks decide the interest rate for these schemes and are periodically updated.
  • You can use the savings you make through these schemes for emergencies, retirement, higher education, children’s education, marriage, at the time of job loss, to reduce debts and more.

Why are they significant?

Saving schemes are important for individuals of a country and, in turn, for an economy because of the following reasons:

  • Safety: Depositing your hard-earned excess money in saving schemes will help secure it for your future needs. Holding on to liquid money may not be safe.
  • Retirement Funds: Periodically, depositing money in long-term saving schemes can help you build a retirement corpus..
  • Tax Savings: Many saving schemes offer one or the other kind of tax benefits—may it be tax deductions, exemption, or both.
  • Avoid Unwanted Expenses: When you have all the money at hand, you may end up spending it on unwanted items.
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