Savings

Interest rates on small savings plans unchanged for 2 years – here’s why

The government has kept interest rates on small savings plans unchanged for the past two years after they were last revised in the first quarter of 2020-21, even as banks have dramatically increased mortgage and deposit rates term after the Reserve Bank of India (RBI) has raised its repo rate by 140 basis points since May 2022.

Small savings schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC), Post Office Savings Scheme and Sukanya Samriddhi Yojana are essential savings instruments for the common man as they offer long term benefits.

However, given that public and private sector banks have significantly increased their term deposits as well as mortgage rates since May 2022, keeping small savings plan rates unchanged over the past two years has been a surprise.

Banking industry sources, however, pointed out that when the coronavirus pandemic broke out in 2020, the RBI and banks cut their deposit rates.

In fact, RBI had cut its benchmark repo rate by 75 basis points to 4.40% on March 27, 2020 – just three days after Prime Minister Narendra Modi announced a nationwide lockdown – to relieve the public. .

Incidentally, during this period, the government had not cut interest rates for small savings schemes, keeping in mind the interests of depositors, especially pensioners, sources said.

A senior bank official said that as deposit rates were cut by the RBI and banks during the pandemic and interest rates for small savings schemes were not cut, the government is increasing maintaining pension rates while keeping small savings plan rates unchanged to counter rising interest charges.

The sources also pointed out that the government will monitor inflation as well as the liquidity position before making any decision to raise interest rates for small savings schemes.

“Depending on how inflation rises and the liquidity position tightens in the future, the government may call on rates from small savings schemes,” a senior banking official said.

On June 30, 2022, the Ministry of Finance had notified that interest rates for small savings schemes were kept unchanged for the July-September quarter of the current fiscal year, effective July 1.

“The interest rates of the various small savings plans for the second quarter of the financial year 2022-23, beginning on July 1 and ending on September 30, will remain unchanged from those notified for the first quarter (April 1 as of June 30) for the 2022-23 fiscal year,” the finance ministry’s notification said.

Here are the current interest rates for some key small savings plans:

* Public Provident Fund (PPF): 7.1%

* National Savings Certificate (NSC): 6.8 percent

* Monthly post office income scheme: 6.6%

* Sukanya Samriddhi Yojana: 7.6%

* Five-year savings plan for seniors: 7.4%

* Kisan Vikas Patra: 6.9%