Govt Hikes Interest Rates On Small Savings Schemes For April-June Quarter

The Central Government increased the interest rate on various small savings schemes, including the Senior Citizen Savings Scheme, Sukanya Samriddhi Account Scheme, Monthly Income Savings Scheme, National Savings Certificate, Kisan Vikas Patra and all post office time deposits on Friday.

However, the government has maintained the interest rate for the Public Provident Fund (PPF) scheme at 7.1 per cent for this time.

The govt has increased the interest rate on some small savings schemes by up to 70 basis points (one percentage point equals 100 bps) for the quarter starting 1 April, the ministry said.

A glimpse at the new interest rates that will be implemented starting next month.

The interest rate for the senior citizens' savings plan has been raised to 8.2 from 8 per cent and the interest rate for Kisan Vikas Patra has been raised to 7.5 from 7.2 per cent.

The government has also raised the interest rate on one, two, three and five-year time deposits from 6.6 per cent, 6.8 per cent, 6.9 per cent and 7.0 per cent in the previous quarter to 6.8 per cent, 6.9 per cent, 7.0 per cent and 7.5 per cent respectively.

The interest rate on the Monthly Income Account plan has also been increased from 7.1 per cent to 7.4 per cent. The interest rate on National Savings Certificates has been increased from 7 to 7.7 per cent.

Sukanya Samriddhi plan holders will now receive 8 per cent interest instead of 7.6 per cent.

“Small savings interest rates have been raised by 10-70 basis points across various instruments, as expected. This should help to attract consistent deposits in the coming quarter, given the MPC's anticipated rate hike in April 2023, which would then be transmitted to bank deposit rates,” said Aditi Nayar, Chief Economist at ICRA.

For the third occasion in nine months, the government has raised interest rates on small savings schemes. Currently, the interest rates on small savings plans vary from 4 to 8.2 per cent.

While set by the government, small savings interest rates are tied to market yields on G-secs with a lag and are reviewed, fixed every quarter at a spread ranging from 0-100 basis points over and above G-Sec yields of similar maturities, according to the Reserve Bank of India.

However, interest rates on small savings have not always followed market rate movements.

Small savings schemes, such as post office 1-3-year time deposits and 5-year recurring deposits, are government-managed savings instruments designed to encourage people to save routinely. Saving certificates such as National Saving Certificates and Kisan Vikas Patra, Sukanya Samriddhi Account, and Senior Citizens Savings Scheme is also available.

The ministry of finance's department of economic affairs announced rate adjustments in response to the rising interest rate environment.