Small savings schemes play an important role for financial savings. The general public invests through PPF, NSC, Post Office Savings Schemes, EPF, KVP and other Small Savings Schemes. Small savings schemes are an important component of household savings in India. Most people in India prefer to invest in government schemes. The government provides interest and other facilities on the money invested in the schemes and invests this money in various developmental works. Small savings schemes operate through a nationwide postal network. Public sector banks and some private sector banks offer small savings schemes in India. These schemes are very important for ordinary citizens, so through this article, we are going to give you information about the interest rates of small savings schemes.
Small Savings Schemes in India
Post office deposits (Post Office Deposits)
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This includes Post Office Time Deposits, Post Office Savings Accounts, Post Office Recurring Deposits and Post Office Monthly Income Scheme (POMIS) etc.
Savings certificate (Savings Certificates)
– Under this, National Savings Certificate, PPF, SCSS, KVP and Sukanya Samriddhi Account etc. are included.
Why small savings schemes are needed?
- Small savings schemes help in meeting the social objectives of the government. Schemes like PPF, Senior Citizen Savings Scheme and Sukanya Samriddhi Yojana have been launched for the convenience and prosperity of girls and senior citizens in India.
- The government offers a higher rate of interest on small savings schemes than bank fixed deposits.
- It is an excellent investment option for low income people in India. It helps in securing the future of low income people.
- It is also an excellent means of saving taxes. PPE and EPF provide EEE tax benefit. On investing in many of these investment options, you can avail tax benefits of up to Rs 1.5 lakh per year under Section 80C of the Income Tax Act.
- Compared to other investment options, these are very safe and they also provide assured returns and the risk is minimal.
How to calculate the interest rates of small savings schemes?
The interest rates of small savings schemes are revised every quarter. These depend on the government bond yield in the previous quarter. A government bond yield is the interest the government pays to borrow money. The 10-year bond yield in January 2020 was 6.5%. The rates of small savings schemes are based on the suggestions of Shyamala Gopinath Committee. The interest rates of various small savings schemes are 25–100 bps higher than the government bond yield of the same maturity. In simple words, their rates are determined on the basis of government bond sales and market fluctuations.
Small Savings Schemes Interest Rates
There is no change in the interest rates of small savings schemes like PPF, NSC and others for the January-March 2020 quarter.
| Small budget schemes | Rate of interest |
| Sukanya Samriddhi Account | 8.4 |
| saving account | 4.0 |
| One year time deposit | 6.9 |
| Two year time deposit | 6.9 |
| Three year time deposit | 6.9 |
| Five year time deposit | 7.7 |
| Five Year RD Account | 7.2 |
| Five Year Senior Citizen Scheme | 8.6 |
| Five year MIS account | 7.6 |
| Five Year NSC | 7.9 |
| PPF | 7.9 |
| Kisan Vikas Patra | 7.6 (will mature in 113 months) |
Why it is good for investors to keep the rates of small savings schemes unchanged?
Bank FD rates have been falling in the last few months. RBI has cut the repo rate by 135 bps in 2019. Banks have also cut home loan rates and FD rates. Due to this, investors are attracted to small budget schemes. Small savings schemes are offering higher interest rates. Pensioners are facing difficulties due to the fall in FD rates. Pensioners have lost about Rs 5,845 every year due to falling interest rates. If you look at the SBI FD rates in August 2019, you will find that SBI’s one-year FD rates were 6.8% for ordinary citizens and 7.3% for senior citizens. If you look at SBI’s one-year FD rates in November, it was 6.25% and 6.75% respectively.
With a reduction of 55 bps in just 3 months, pensioners had no option but to save on small savings schemes. The government has kept the rates of small savings schemes unchanged for the January-March 2020 quarter, which is very good for senior citizens. The Reserve Bank of India had asked the government to change the interest rates of small savings schemes in line with market rates. If the Finance Ministry does not change the existing rates, the rates remain unchanged.
