Govt keeps interest rates on small savings schemes unchanged for July-Sept quarter

The Central Government on Thursday kept interest rates on small savings schemes such as the Public Provident Fund (PPF) and National Savings Certificate (NSC), unchanged for the July to September quarter. This is the ninth quarter in a row that small savings rates have not changed.

Interest rates for small savings schemes are notified on a quarterly basis and are based on the average yields of government bonds.  The Shyamala Gopinath committee in 2011 had recommended to make small savings scheme market linked. 

The rate of interest on various small savings instruments is now pegged to the government securities (G-sec) rates of similar maturities.

The interest rate has not been revised since the first quarter of 2020-21.

However, over the past one year, the yields of government bonds have surged amid rate hikes by the RBI to control inflation. Accordingly, many banks have also increased their fixed deposit rates. 

The government in March kept interest rates unchanged for small savings schemes, including PPF and NSC, for the first quarter of 2022-23 amid rising inflation.

PPF and NSC will continue to carry an annual interest rate of 7.1% and 6.8%, respectively, in the first quarter of the next fiscal.

“The rate of interest on various small savings schemes for the first quarter of the financial year 2022-23, starting from April 1, 2022, and ending on June 30, 2022, shall remain unchanged from the current rates applicable for the fourth quarter (January 1, 2022, to March 31, 2022) for FY 2021-22,” the finance ministry had said in a notification earlier.

The one-year term deposit scheme will continue to earn an interest rate of 5.5% in the first quarter of the next fiscal while the girl child savings scheme Sukanya Samriddhi Yojana will fetch 7.6%.

It is to be noted that the country’s biggest lender State Bank of India (SBI) offers 5% interest rate on one-year fixed deposit.

The interest rate on the five-year senior citizens’ savings scheme will be retained at 7.4%. The interest on the senior citizens’ scheme is paid on a quarterly basis.

The interest rate on savings deposits will continue to be at 4% per annum.

Term deposits of one to five years will fetch an interest rate in the range of 5.5-6.7%, to be paid quarterly while the interest rate on five-year recurring deposits will earn a higher interest of 5.8%.

Recently, the Provident Fund (PF) rate was reduced to a four-decade low of 8.1% for 2021-22 from 8.5%.

Defending the proposal to cut interest rate paid on employees’ provident fund deposits, Finance Minister Nirmala Sitharaman, earlier this month, said the rate is dictated by today’s realities where interest rate on other small saving instruments was even lower.

Sitharaman had also cited the comparative prevailing interest rates of other schemes saying Sukanya Samriddhi Yojana offers 7.6%, Senior Citizen saving scheme (7.4%) and PPF (7.1%) while SBI’s 5-10 year fixed deposits gives 5.50%.

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