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News18
05-08-2025
- Business
- News18
Why The Government Hasn't Raised Interest Rates On Popular Savings Schemes
Last Updated: Despite rising bank interest rates, the government hasn't changed small savings scheme rates in two years. For the past two years, the government has kept the interest rates on popular small savings schemes unchanged. This is even though both public and private banks have raised their home loan and fixed deposit rates significantly since May 2022. The hikes came after the Reserve Bank of India (RBI) increased the repo rate by 140 basis points during that period. Small savings schemes such as the Public Provident Fund (PPF), National Savings Certificate (NSC), Post Office Savings, and Sukanya Samriddhi Yojana are important for the average Indian investor. These schemes offer long-term savings options with government backing, making them a reliable choice for pensioners and middle-class families. Why Interest Rates Stayed the Same According to Zee Business, experts in the banking sector say that the situation goes back to the early days of the COVID-19 pandemic. In March 2020, just after the nationwide lockdown was announced, the RBI slashed its repo rate by 75 basis points to 4.40 per cent to ease financial pressure on citizens. Following this, banks also lowered their deposit interest rates. During that time, the government did not reduce interest rates on small savings schemes. This was done to protect the earnings of depositors, especially senior citizens who rely heavily on such schemes for regular income. Now, even though the RBI is increasing the repo rate and banks are offering higher returns on deposits, the government is holding small savings rates steady. Banking insiders believe that the government is using this as a way to manage rising interest costs, as per Zee Business. Since banks had earlier lowered deposit rates and small savings rates remained untouched, the current strategy helps balance the overall interest burden. Officials also mentioned that future changes will depend on how inflation behaves and the country's liquidity situation. If inflation rises sharply or there is less liquidity in the system, the government may consider revising the rates. But for now, no such move has been made. On June 30, 2022, the Finance Ministry officially announced that interest rates for small savings schemes would remain the same for the July–September quarter of the financial year 2022–23. Current Interest Rates Here are the latest rates on key small savings schemes: – Public Provident Fund (PPF): 7.1 per cent – National Savings Certificate (NSC): 6.8 per cent – Post Office Monthly Income Scheme: 6.6 per cent – Sukanya Samriddhi Yojana: 7.6 per cent – Senior Citizens Savings Scheme (5-Year): 7.4 per cent – Kisan Vikas Patra: 6.9 per cent These rates remain fixed for now, offering stable but slightly lower returns compared to bank deposits. However, they continue to be a safe and preferred choice for many Indian savers. view comments Location : Delhi, India, India First Published: News business Why The Government Hasn't Raised Interest Rates On Popular Savings Schemes Disclaimer: Comments reflect users' views, not News18's. Please keep discussions respectful and constructive. Abusive, defamatory, or illegal comments will be removed. News18 may disable any comment at its discretion. By posting, you agree to our Terms of Use and Privacy Policy.
The Hindu
12-05-2025
- Business
- The Hindu
The importance of Small Savings Schemes
Small Savings Schemes, kown as Post Office Savings Schemes, are a popular and useful means for people for channelising savings. Credit quality is top-notch as it is run by the government, and interest rates are competitive. Interest rates are fixed by the government every quarter e.g. the rates for the current quarter, April to June 2025, were announced on March 31. Today we will see, on what basis the rates are fixed by the government. Basis for fixing rates As per an old decision of the Government, the rate of interest on Small Savings Schemes will be aligned with Government Security (G-Sec) rates of similar maturity with a spread i.e. mark-up. As an example, the spread on Senior Citizens Savings Scheme will be 1% over comparable maturity G-Secs. The rationale for linking it to G-Sec yields in the secondary market is that it is in line with interest rate movements; G-Sec yield movements reflect actual and anticipated economic events pertaining to interest rate movement. To clarify the concept, let us say the benchmark G-Sec rate is X% and the mark-up as per the formula is Y%. Hence, the rate should be X% plus Y%. However, if the rate is higher, say X% plus Y% plus Z%, then Z represents the generosity of the Government for the benefit of citizens. The rates on Small Savings Schemes are reviewed every quarter. However, rates are not revised downward every quarter even when G-Sec rates are sliding, which is the 'Z' referred earlier. Prevailing rates Post Office Savings Deposit rate is 4%. Public Provident Fund (PPF), which is a 15-year scheme (though it can be extended), is supposed to have a spread of 25 basis points (100 bps = 1%). The relevant G-Sec rate (the average of G-Sec of corresponding maturity from December 2024 to February 2025) relevant for the quarter April to June, was 6.85%. By that logic, PPF rate is (6.85 + 0.25= 7.1%) maintained now. Post Office Term deposits of 1, 2 and 3-year maturity are to be at the corresponding G-Sec rate, without any markup. For a 5-year term deposit, the spread is 25 bps. Against the reference G-Sec yield of 6.62%, it should have been 6.87%. The rate for a 5-year TD is 7.5%. The excess interest is 0.63%. This 63 bps is the 'Z' referred earlier. Kisan Vikas Patra (KVP) is at zero spread; with reference point at 6.85% and rate at 7.5%, the additional interest over formula is 0.65%. For NSC VIII Issue, which is at a mark-up of 25 bps, formula rate is 7.04%. At 7.7%, the additional interest is 0.66%. Senior Citizen Savings Scheme (SCSS), mentioned earlier, has the highest spread of 1% over reference G-Sec yield, as a social benevolence to take care of seniors, who may not have active income. At the reference 5-year G-Sec yield of 6.62%, the formula rate is 7.62%. The rate on offer is 8.2%, implying an additional interest (Z) of 0.58%. Sukanya Samriddhi The last is the Sukanya Samriddhi Account Scheme, which has the longest tenure of 21 years. The formula mark-up is 75 bps. The reference G-Sec yield is 6.85%. Against the formula rate of 7.6%, the rate is 8.2%. The additional interest a girl child would get this quarter is 0.6%. Interest rates are coming down, as the Reserve Bank of India (RBI) has been reducing the reference repo rate. The repo rate, which was 6.5% earlier, is at 6% now. It is expected that the RBI would cut the repo rate further. This is driven by lower inflation and economic growth being a little lower than earlier. Consequently, G-Sec yields have eased. As an example, 10-year maturity G-Sec, which was at 7.2% a year ago and 6.85% six months ago, is at 6.36% now. The reference G-Sec yield levels mentioned earlier pertain to the period December 2024 to February 2025. Since then, G-Sec yields are lower. The implication is, when rates for next quarter viz. July to September are announced on June 30, the reference point will be lower. Conclusion We have mentioned earlier, there is a 'generosity component' or 'Z' component in the currently prevailing Small Savings rates. With the reference rate coming down, if the government maintains the current rates, the 'Z' component will be higher. While it is possible it maintains current rates as there is a political implication of cutting it, pressure will be higher on government's finances. Hence there is a possibility Small Savings rates may be reduced going forward. From that perspective, if you have the money, it is advisable that you lock-in by June. (The writer is a corporate trainer (financial markets) and author)
