Interest Rates on Some Small Savings Schemes Increased for October-December
Moneylife Digital Team 30 September 2022
After maintaining the status quo for small savings rates for 27 months (nine quarters), the finance ministry has hiked interest rates on some of the small savings schemes for October-December.
Interest rates were marginally hiked for 2-year and 3-year time deposits, senior citizens savings scheme and Kisan Vikas Patra (KVP), while rates for other schemes remained unchanged.Interest rates on small saving schemes are reset on a quarterly basis, in line with the movement in benchmark government bonds of similar maturity. Typically, small saving rates are linked to yields on benchmark government bonds but, despite the movement in G-Sec yields, the government had not re-set the interest rates over the past two years.
While the interest rate for popular Public Provident Fund (PPF) and National Saving Certificate (NSC) were retained, rates for five other schemes, where income accruing is taxable, have been hiked by up to 30bps (basis points).
The changes have come amid higher inflation rate and a rising interest rate cycle. The recent retail inflation print for August came in at 7%, marking the eighth month above the  upper threshold of the Reserve Bank of India's (RBI’s) target of 4 +/- 2 %, and almost three years (35 months) of staying above 4%. The repo rate currently stands at 5.4%, after a raise of 140bp since May. 
The view within the ministry for hiking rates is to “balance the interests of senior citizens, persons saving in instruments without tax benefits along with keeping the interest rate for small savings in check,” which essentially translates into a higher interest cost for the government when it borrows against the National Small Saving Fund. 
Among the most popular fixed-income products, PPF will fetch 7.1%, while NSC yields 6.8%. The girl child savings scheme Sukanya Samriddhi Yojana offers a rate of 7.6 %.
The interest rate on savings deposits will continue to be 4% per annum. Employees provident fund (EPF) continues to have a higher interest rate for its subscribers, despite the rate being reduced to 8.1% for FY21-22–the lowest in four decades. 
The interest rates were earlier revised for the first quarter of 2021-22 (April-March) and reduced sharply by 40-110bps, but the decision was later rolled back, with the finance minister saying that the “orders issued by oversight shall be withdrawn.” 
It may be recalled that the reduction of interest rates and the subsequent withdrawal had happened in March-end 2019 during the run up to the West Bengal assembly elections. Prior to that, the interest rates were revised two years ago for the first quarter of 2020-21.
4 months ago
Free Helpline
Legal Credit