Everything You Need to Know about Savings Scheme

everything you need to know about savings scheme

There are different savings schemes that have been launched by various public and private sector banks. Apart from this, the Government has also launched several schemes, to encourage citizens to develop the habit of savings. Keep reading to know what a saving scheme is, its benefits and some ways in which you can select the best among the available options.

What Is a Saving Scheme?

Savings schemes are financial instruments that aid the citizens of India to keep substantial money aside for their future. Thus, you can get access to sufficient funds when you encounter any emergency situation. Moreover, you can accelerate the achievement of your financial goals with the help of these schemes.

The different savings schemes available in India are as follows:

  • Fixed Deposits (FD)
  • Equity-Linked Savings Scheme (ELSS)
  • Public Provident Funds (PPF)
  • Post Office Monthly Income Scheme
  • National Savings Certificate (NSC)
  • Senior Citizens Savings Scheme (SCSS)
  • Sukanya Samruddhi Yojana (SSY)
  • Kisan Vikas Patra (KVP)
  • Atal Pension Yojana (APY)
  • Employees Provident Fund (EPF)
  • National Pension System (NPS)
  • Pradhan Mantri Jan Dhan Yojana
  • Voluntary Provident Fund (VPF)
  • Deposit Scheme for Retiring Government Employees

Why Should You Invest in Savings Schemes?

It is essential to invest in a savings scheme due to the following reasons:

Ensuring the Safety of Funds

Keeping excess liquid cash in your house is not really safe. This is so because there will not be much security to protect it. Additionally, it might become difficult to manage this money efficiently. With a savings account, you can keep the excess cash safe and stay worry-free. Also, the funds are easily manageable so that you can keep continuous track of them.

Getting Long-Term Benefits

You can earn compound interest on the money you deposit in a savings account. Thus, if you keep money in your account for a substantial time, you can get extensive returns from the same. Usually, there are no constraints on how long you can keep this money in savings accounts. Hence, on the maturity of these accounts, you can earn substantially.

Building Retirement Funds

If you deposit in savings schemes for extended periods, you can easily build a high-volume retirement fund. Along with the interests and periodic instalments, you will have substantial money to fulfil your post-retirement needs. Thus, you can stay financially independent and fulfil your retirement goals with ease.

Avoiding Unwanted Expenses

Keeping liquid cash in your house can lure you in to spend it on things that are not essential. This can lead to the wastage of your hard-earned money. However, if you keep the same in a savings account, you cannot withdraw it before the lock-in period ends. This will help you to be cautious about your expenses and minimise wastage.

Availing Tax Benefit

You can claim a tax benefit on depositing money in various savings schemes under different Sections of the Income Tax Act. The benefit is usually offered on interests and maturity. This is helpful as you can save substantially, adding to your savings and increasing the maturity amount.

Due to the availability of several savings schemes, it might get confusing when selecting the right one. However, you can note some ways to invest in the right savings scheme to maximise your returns.

How Can You Select the Right Savings Scheme?

Below are some tips which will help you select the right savings scheme:

Check the Risk Factor of the Scheme

The first and foremost thing that you should check is the extent of risk associated with the scheme. This would be beneficial as you can determine if you are comfortable with it. Otherwise, you can go for some other scheme.

Determine Your Long-Term Objectives

Prior to selecting the savings scheme, it is essential to determine your long-term financial goals. This will help you to decide if a particular scheme is competent enough to suit your need. Otherwise, you can end up selecting one that will not offer enough returns.

Find Out the Lock-In Period of the Scheme

Lock-in period refers to the duration for which you cannot withdraw your money. Usually, this tenure ranges up to five years. However, it can vary considerably with the schemes. So, it is a vital factor that you should check before applying for one.

Check Interest Rates and Eligibility

The interest rate and eligibility of the schemes vary prominently. Hence, it becomes highly crucial to check the eligibility criteria to determine if you can apply for the same. Also, you should find out the interest rates to calculate the returns that you are eligible to get.

Check the Pay-Out Method of the Scheme

Different savings schemes can have a variety of payout methods after the maturity of the scheme. You can receive the maturity money either as a lumpsum amount or at periodic intervals. Hence, you should check if you are comfortable with the pay-out options available for a particular scheme.
Knowing what a savings scheme is, its types and how it works is essential for making an informed approach towards investing in the right scheme. This would ensure maximum benefits and increased returns on its maturity.

FAQs about Savings Scheme

What are the benefits of saving early?

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On starting the savings earlier there will be longer time and higher potential for wealth creation. This way you can benefit from compound earnings.

What is the main objective behind saving money in different schemes?

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Depositing money in savings schemes allows you to have adequate funds in case you meet any financial emergencies. This provides you a sense of security and peace of mind. Furthermore, investing money in savings also helps in wealth creation.

Which savings scheme gives the highest returns?

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Savings schemes which provide the highest returns include National Savings Certificate, Recurring Deposits, Public Provident Fund, Kisan Vikas Patra, Sukanya Samriddhi Yojana, and many more.

Can a life insurance policy be considered a savings plan too?

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Yes, it depends on the type! A pure term insurance plan is for protection only, with no returns if you survive the policy term. But there are life insurance products like endowment plans or ULIP plans that mix savings with life cover. They offer a maturity benefit along with life insurance coverage.

Does health insurance offer financial security like a savings plan?

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Health insurance does not function as a savings plan, but it provides financial security by protecting your savings from unexpected medical expenses. Unlike traditional savings schemes such as PPF or FD, health insurance does not accumulate wealth over time. However, it ensures that hospital bills, treatments, and other healthcare costs don’t deplete your hard-earned savings.

Disclaimer

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  • This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
  • All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
  • Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.

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