Interest Rates on Small Savings Schemes to Increase?

The government determines the interest rates on savings schemes every three months. The central government will decide on the new interest rates for the period between July and September by this month’s end. There is anticipation that this time there will be a hike in the interest rates concerning small savings schemes. The interest rates on several small savings schemes have not been revised for the previous eight quarters since Q1 FY2021. 

As per a recent study, the 10-year government bonds yield stands at 7.460%; it has increased by 11 basis points in 1 month and 99.9 basis points in six months. The 5-year government bonds yield stands at 7.269%; it has increased by 12.8 basis points in 1 month and by 140.4 basis points in six months. 

The 2-year and 3-year government bond yields stand at 6.603% and 7.005%, with an increase of 163.3 basis points and 171 basis points, respectively, in six months. In one month, the increase is around 28.2 points and 14.8 basis points. In six months, the 1-year government bond yields increased by 207.1 basis points and stood at 6.303%. In one month, the yield increased by 39.1 basis points. 

As per economists, the average month-end government bond yields for 1-year, 2-year, and 5-year bonds have increased considerably by 138 bps, 93 bps, and 79 bps, respectively, between March 2022 and May 2022, with an increase of 38 bps, 31 bps, and 31 bps, respectively, between December 2021 and February 2022.

According to economists, the small savings scheme interest rates could be increased for Q2 FY2023 due to the sharp increases recorded in the G-Sec yields of several maturities, to which such interest rates are linked.

In 2016, the Finance Ministry had set forth additional interest rate spreads on various small savings schemes such as Senior Citizen Savings Scheme, PPF, NSC, Sukanya Samridhi Scheme, etc. For PPF, the additional interest rate spread is 25 basis points. For Senior Citizen Savings Scheme, it is 100 basis points. For Sukanya Samridhi Scheme, it is 75 basis points. For a 5-year time deposit, it is 25 basis points. For National Savings Certificate and Monthly Income Scheme, it is 25 basis points. These additional interest rate spreads are still being followed.

There could be another reason for increasing the government-owned small savings schemes’ interest rates as banks have increased their fixed deposit interest rates due to the repo rate hike. To make the post office savings more attractive for customers versus bank FDs, the government intends to hike the interest rates on these small savings schemes.

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