Raising a child brings incomparable joy. It also comes with immense responsibility, and securing their financial future is a central duty of every parent. For parents of girl children, two trusted options worth considering are the Sukanya Samriddhi Yojana (SSY) and the traditional bank fixed deposit (FD). Both are safe and reliable choices, which have differing structures, returns, and tax benefits.
The choice, however, ultimately depends on which aligns better with your long-term goals. Let’s dive deeper into what both these options offer and which may be a better choice.
Sukanya Samriddhi Scheme and Fixed Deposits – The basics
Both SSY and bank FDs are considered safe investments. SSY is a government-backed small savings scheme launched under the Beti Bachao, Beti Padhao campaign. The principal and interest are sovereign guaranteed. FDs are another low-risk option that is covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to Rs 5 lakh.
Returns and interest rates
SSY currently offers an interest rate of 8.2 per cent per annum (April–June 2025), compounded annually. Bank FD rates are currently trending between 6–7.5 per cent, but this may vary based on tenure and the bank. However, this minor difference in rate compounds significantly over time.
Lock-in and liquidity
SSY comes with a 21-year lock-in, though contributions are required only for the first 15 years. Withdrawals are permitted once the beneficiary turns 18 years old. Up to 50 per cent of the balance from the previous year can be accessed, either as a lump sum or in installments over five years, for education or other specified needs. In exceptional circumstances such as death, serious illness, or the loss of a guardian, the account can be closed after five years with proper documentation.
FDs, on the other hand, offer greater flexibility. Tenures range from 7 days to 10 years, with the option of premature withdrawal subject to a penalty of about 0.5–1 per cent. If liquidity is the priority, FDs are better suited, while SSY enforces discipline for long-term savings goals.
Tax benefits and implications
Contributions of up to Rs 1.5 lakh a year in SSY qualify for deduction under Section 80C, while both the interest earned and the maturity proceeds are completely tax-free. This makes SSY one of the most tax-efficient avenues for parents.
Fixed deposits, on the other hand, qualify for deduction only if you choose a 5-year tax-saving FD under Section 80C. Even then, the interest is fully taxable at your slab rate. For someone in the 30 per cent bracket, a 7 per cent FD effectively yields just 4.9 per cent post-tax.
Goal alignment and suitability
SSY is designed with the clear purpose of securing a child’s future. Its lock-in feature ensures parents remain invested for the long term. For instance, opening an SSY account when your child is 2 years old and contributing Rs 1.5 lakh annually can create a corpus of around Rs 71.82 lakh by maturity. This amount can help fund higher education or significant life milestones.
Fixed deposits, on the other hand, are versatile but not goal-linked. They work better for short- to medium-term needs such as school fees, coaching expenses, travel, or emergencies. For example, if you require Rs 3 lakh in 2 years, an FD is more suitable than SSY. Ideally, parents should use both – SSY for disciplined, long-term wealth creation and FDs for shorter commitments.
In essence, Sukanya Samriddhi Yojana and fixed deposits serve different financial purposes. SSY, with its higher returns, tax exemptions, and built-in discipline, is more effective for long-term goals. FDs, with their flexibility and liquidity, are valuable for immediate or near-term requirements. A balanced mix of the two often works best.
(The author is the CEO at BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)
