Small savings schemes, which include public provident fund (PPF), National Saving Certificates (NSC) and Sukanya Samriddhi Yojana (SSY), are expected to be revised upwards for the January-March 2023 quarter, experts say. The possible reason behind this could be the Reserve Bank of India (RBI) continuing with its repo rate hike cycle. Also, yields on bonds have recently increased.
It's important to note here that the interest rates offered by the small savings schemes are revised on a quarterly basis and they are directly linked to government bond yields and interest scenarios.
The current trend
The government announced a
hike in small savings interest rates by 10 bps to 30 bps for the October-December quarter. However, the same was done only for 2-year and 3-year time deposits, senior citizens' savings scheme and Kisan Vikas Patra. Rates for other schemes like Sukanya Samriddhi Yojana (SSY), Public Provident Fund (PPF), and National Savings Certificate (NSC) remained unchanged.
Experts say that PPF and SSY rates are tied to long-term trends, while the repo rate is on the low end of the debt range. So,
PPF rates did not mirror the repo rate when it went down.
According to Abhinav Angirish, Founder at Investonline.in, the government is increasing the repo rate while maintaining the status quo on interest rates of small savings schemes to balance out the increasing interest burden.
Small savings rates are correlated with yields on bonds with the same maturity. The yields on bonds continued their downward trend during 2020 and 2021. Now that bond yields have skyrocketed, expectations are rife that savings scheme rates will rise.
However, Adhil Shetty, CEO at BankBazaar.com, believes that the rates would go up only in a very limited manner.
Why do investors prefer small savings schemes?
Even though small savings schemes may not provide huge returns on investment, they are a disciplined way of saving money, irrespective of age.
The post office offers several such deposit schemes that come with a sovereign guarantee and tax benefits. Apart from this, the government operates schemes such as the PPF via public sector banks.
Currently, India Post or Department of Posts, which runs postal services in the country, offers nine types of small saving schemes.
Here are the interest rates offered by small savings schemes:
| Savings Scheme | Interest rate |
| Post Office Savings Account | 4.00% |
| Post Office Recurring Deposit | 5.80% |
| Post Office Monthly Income Scheme | 6.70% |
| Post Office Time Deposit (1 year) | 5.50% |
| Post Office Time Deposit (2 year) | 5.70% |
| Post Office Time Deposit (3 year) | 5.80% |
| Post Office Time Deposit (5 year)* | 6.70% |
| Kisan Vikas Patra (KVP) | 7% |
| Public Provident Fund (PPF) | 7.10% |
| Sukanya Samriddhi Yojana | 7.60% |
| National Savings Certificate | 6.80% |
| Senior Citizens’ Saving Scheme (SCSS) | 7.60% |
