The Union government might lower the interest rates for the small savings schemes for the June quarter, according to sources. The small savings instruments include Public Provident Fund Account (PPF ), Sukanya Samriddhi Accounts, Senior Citizen Savings Scheme, Post Office Savings Account, 5-Year Post Office Recurring Deposit Account (RD), National Savings Certificates (NSC) among others. The finance ministry will announce the interest rates for the first quarter of financial year 2023 on Thursday, March 31.
Will Govt Cut Interest Rate of PPF and Other Small Savings Scheme?
The Reserve Bank of India (RBI) suggested a further reduction in interest rates on small saving instruments for the first quarter of fiscal 2022-23.“The Government of India reviewed interest rates on small saving instruments (SSIs) on December 31, 2021, and left them unchanged for the seventh straight quarter. The current interest rates on SSIs are 42-168 bps higher than the formula-based rates for Q4:2021-22,” it further mentioned
“The existing rates of interest on small saving instruments need to be reduced in the range of 9-118 bps for Q1 of 2022-23 to align them with the formula-based rates,” according to RBI report.
The Union government review the interest rates on small savings schemes every quarter. These administered interest rates are linked to market yields on G-secs with a lag and are fixed on a quarterly basis at a spread ranging from 0-100 bps over and above G-sec yields of comparable maturities, the central bank said in its ‘State of the economy’ report.
PPF Interest Rate Cut: What Analysts Say
Speaking about the latest interest rate of small savings scheme, Maneet Pal Singh, partner, I P Pasricha & Co says, “With the falling rate of interest on traditional savings options such as Fixed Deposits’ over the past years, investors are attracted to small savings schemes as they offer higher returns. The Reserve Bank of India (RBI) also pointed out high rates on small savings scheme’s as an obstacle and backed rationalization of returns on such scheme’s. However, the government announced same rate of interest in fourth quarter as compared to third quarter.”
The finance ministry has kept the interest rates of small savings schemes unchanged for over two years. Last year, Centre reduced the interest rates of small savings interest rate but reversed it later to provide some relief to middle class amid Assembly Elections in states like West Bengal and Assam.
According to the latest rules, PPF fetches 7.1 per cent interest. The interest for NSC or National Savings Certificate has been fixed at 6.8 per cent. Post Office Monthly Income Scheme or MIS now earns 6.6 per cent interests. Post Office 5-year term deposit fetches 6.7 per cent interest while 5-year recurring deposit earns 5.8 per cent interest.
EPFO Interest Rate Reduced? Small Savings Schemes to Follow
The central government’s has recently reduced rate of the Employees’ Provident Fund Organisation (EPFO) deposits. “As part of its latest move to trim the interest rate for the Employees’ Provident Fund Organisation (EPFO) deposits, the government is considering reducing interest rates for small savings schemes again for the first time. Small savings rates should be reduced. The broader interest-rate climate is distorted when the rates are artificially high for long periods of time. This was one of the reasons the EPFO rate for FY22 was reduced from 8.5 per cent to 8.1 per cent,” said Amit Gupta, managing director, SAG Infotech.
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