Sukanya Samriddhi Account (SSA) vs. Fixed Deposits (FDs)

 

Sukanya Samriddhi Account vs. Fixed Deposits

Ever since Sukanya Samriddhi Scheme has been launched in early 2015, there have been comparisons of the scheme with other popular tax saving options like PPF, FD, etc.  Such comparisons are obvious and inevitable sine the investors want to keep themselves abreast with latest tax saving tools.

In this article we would focus on various aspects of SSA and FD and would try to make a fair comparison so that you get to decide the best for yourself.  The deposits made for both FD and SSA are exempted under section 80C of Income Tax and both apply to your specific requirements.

The BASIC Difference between FD and SSA

While we will discuss the various differences between FD and SSA, the basic difference between the two lies in the fact that FD can be done for any Indian Individual, however, Sukanya Samriddhi Account is under a premier scheme only for the girl child below 10 years of age.  This factor makes both the investment not really comparable to each other.

Moreover, investment in SSA is a continuous process, whereas investment in FDs is a one-time process.

SSA Vs FD In terms of Eligibility Criterion

Any Indian national is eligible to open an FD in any financial institution, irrespective of their age and gender.

Sukanya Samriddhi Account can only be opened for the girl children below the age of 10 years.  Since, this is the startup year; a one year exemption on age is given under the scheme.

SSA Vs FD In terms of Rate of Interest

The rate of Fixed Deposit is decided by every bank from time to time.  As an example and for your reference, State Bank of India is currently offering a rate of 8.5% on all tax saving FDs.

The rate of SSA is uniform for all the financial institutions and is currently at 9.2%.  The rate of interest for SSA would be decided by the central government from time to time and would be based on overall health of the economy.

SSA Vs FD In terms of Investment Amount

The minimum amount that should be deposited in SSA in a given fiscal year is Rs 1,000.  Furthermore, any amount can be deposited any number of times up to a maximum of Rs 1.5 lakh per annum.

In case of FD, the minimum amount to be fixed is Rs 100 and furthermore any amount in the multiples of Rs 100.  The maximum amount of tax FD is again for Rs 1.5 lakh.

SSA Vs FD In terms of Lock-In Period

The lock-in period for Sukanya Samriddhi Account is at least 21 years or at the time of marriage of the account holder, whichever is earlier.  At the same time, a partial withdrawal of up to 50% can be made from the account after 18 years for higher education of the girl child.

The lock-in period for FD too is fixed and is ascertained by the bank offerings.  The lock-in period of FDs can vary from 1 to 10 years, depending on banks to banks.

SSA Vs FD In terms of Investment Duration

This is again a major difference between both the investment tools.  An account holder can keep investing in SSA up to a period of 14 years from the date of opening of the account.

In case of FD, the investment is made one time and the returns too can be claimed only once after it matures.  There is no provision for partial withdrawal.

SSA Vs FD In terms of Premature Withdrawal

There can’t be any premature withdrawal from fixed deposits.

Premature withdrawal is possible for Sukanya Samriddhi Account but only up to 50% of the amount accumulated in the account.  Moreover, this amount can only be withdrawn for the purpose of higher education of the girl child.

SSA Vs FD In terms of Premature Closure of Account

No premature closure of FD is allowed.  Premature closure can only happen in case of death of the account holder.

Premature closure of SSA is only allowed in two extreme circumstances, i.e. in the event of death of the account holder or in case of parents not able to maintain the account due to extreme financial crisis.

SSA Vs FD In terms of Mode of Operation of the Account

FD can be started online and the management of FD too is possible through online banking.

On the other hand, no online mode of operation/account opening is possible for Sukanya Samriddhi Account.  At present only, post offices and Punjab National Bank are opening SSAs.  There are 27 other authorized banks that are yet to start account opening and operation of Sukanya Samriddhi Scheme.

SSA Vs FD In terms of Tax Benefits

There is an EEE Tax exemption on Sukanya Samriddhi Account investments.  That means that if you invest any amount in SSA, the investment would be completely tax free under 80C.  Moreover, the interest on the deposits as well as the maturity amount too would be free from taxes.

FD enjoys an ETE tax exemption under section 80C of Income tax.  This means that the investment and the maturity amount of FDs are exempted from income tax; however, the interest accrued out of investment in FDs would be taxable.

SSA Vs FD In terms of Extension of Account

A Sukanya Samriddhi Account normally matures at 21 years and the account holder is required to withdraw the maturity amount.  However, if she wishes, she can continue with the account further as well and continue earning interest and other benefits at the same rate of interest.

In case of fixed deposits, no extension is allowed.  If the FD matures in 5 years, the amount has to be collected by the account holder. If the account holder does not collect the matured amount, the account would not enjoy any further interest on the amount.

SSA Vs FD In terms of Number of Accounts in One Name

An account holder, i.e. the girl child, can have just one account in her name.  There can’t be more than one Sukanya Samriddhi Account for any individual.

Any individual can have just one Fixed Deposit for tax within a year.  If the same individual wants to open another FD, they can do so only the next fiscal year.

Why SSA is better than FD for parents of girl child?

As we have already discussed, both the investment tools are better in their own way, however, if we have to say what we feel, we would say that if you are a parent of a girl child, SSA would make more sense than FD to secure future of your girl child in following ways:

  • SSA offers a higher rate of interest than FDs and we hope it would continue to do so in future as well.
  • SSA saving is binding but yet independent in the sense that you can keep saving any amount in your girl child’s account, however, you can’t withdraw it for your petty household emergencies. This way, whatever happens around you, the future of your girl child is secure.
  • The maturity amount in SSA is handed over only to the girl child (account holder), which means that the money would not be misused for any other purposes by anyone else.
  • SSA enjoys EEE tax exemption, which means that no benefit coming out of SSA would be ever taxed. On the other hand FD is ETE tax exempted with interest on the investment being taxed by income tax department.

Last but not the least, the choice would largely depend on the money you have in hand.  If you have a lump sum money in your hand or saving account, FD does make sense.  However, if you are looking for a long term sustained investment with a better rate of interest to secure the future of your girl child, Sukanya Samriddhi Account makes more sense.

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