Interest rates

Government keeps interest rates on small savings plans unchanged for July-September quarter

The central government on Thursday kept interest rates on small savings schemes such as the Public Provident Fund (PPF) and the National Savings Certificate (NSC) unchanged for the July-September quarter. This is the ninth consecutive quarter that small savings rates have not changed.

Interest rates for small savings plans are reported on a quarterly basis and are based on average government bond yields. The Shyamala Gopinath committee in 2011 had recommended making the small savings plan market linked.

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

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

However, over the past year, government bond yields have jumped amid rate hikes by the RBI to control inflation. As a result, many banks have also increased their fixed deposit rates.

In March, the government 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 bear an annual interest rate of 7.1% and 6.8%, respectively, in the first quarter of next fiscal year.

“The interest rate of the various small savings plans for the first quarter of the financial year 2022-23, beginning on April 1, 2022 and ending on June 30, 2022, will remain unchanged from the prevailing rates applicable for the fourth quarter (January 1, 2022 to March 31, 2022) for fiscal year 2021-22,” the finance ministry said in an earlier notification.

The one-year term deposit scheme will continue to generate an interest rate of 5.5% in the first quarter of next fiscal year, while the Sukanya Samriddhi Yojana girls’ savings scheme will reach 7.6%.

It should be noted that the largest lender in the country, the State Bank of India (SBI), offers an interest rate of 5% on a one-year fixed deposit.

The interest rate on the 5-year PEE will be maintained at 7.4%. Interest from the seniors’ scheme is paid on a quarterly basis.

The interest rate on savings deposits will remain at 4% per annum.

One to five year term deposits will earn an interest rate of between 5.5 and 6.7%, payable quarterly, while the interest rate on five year recurring deposits will earn a higher interest rate of 5.8%.

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

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

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

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