The government has announced the interest rates of small savings schemes for the October-December 2023 quarter. The interest rates of certain small savings schemes or post office schemes for the quarter ending December 31, 2023 have been increased by the government. The interest rates of all schemes expect the recurring deposit rate have been kept unchanged.
The finance ministry made this announcement via a circular issued on September 30, 2023. (One percentage point is equivalent to 100 basis points.) The interest rate of the 5-year post office recurring deposit (RD) has been hiked by 0.2% and will now earn 6.7%.
The interest rate on the Public Provident Fund (PPF) has yet again been kept unchanged at 7.1 per cent.
Here is a look at the interest rates on various small savings schemes for the third quarter of FY 2023-24.
|Post office schemes interest rates for Oct-Dec 2023
|Rates of interest from Jul-Sep 2023 (%)
|Rates of interest from Oct-Dec 2023 (%)
|1 Year Time Deposit
|2 Year Time Deposit
|3 Year Time Deposit
|5 Year Time Deposit
|5 Year Recurring Deposit
|Senior Citizen Savings Scheme
|Monthly Income Account Scheme
|National Savings Certificate
|Public Provident Fund Scheme
|Kisan Vikas Patna
|7.5 (will mature in 115 months)
|7.5 (will mature in 115 months)
|Sukanya Samriddhi Account
How the interest rates small savings schemes are set
The interest rates on small savings schemes are reviewed every quarter by the government. The formula to arrive at the interest rates for small savings scheme was given by the Shyamala Gopinath Committee. The committee had suggested that the interest rates of different schemes should be 25-100 bps higher than the yields of the government bonds of similar maturity.
ET Online had reported earlier that since has been no significant change in the rates of 10-year G-Sec yield, the interest rates of small savings schemes are largely likely to remain unchanged for the October-December quarter. “PPF, NSC, SCSS, and other small savings schemes follow the benchmark ten-year G-Sec yield in the secondary market for the last quarter. During the April-June 2023 quarter, this yield was in the range of 6.9%-7.3%. It has stayed around the same levels of 7.0%-7.2% in the ongoing Jul-Sep quarter. Since there is no significant change in the benchmark rate, any hike in the interest rate for small savings schemes is unlikely. However, considering upcoming assembly and center elections, there is still a slim chance that the Government may increase rates for small savings schemes,” Anshul Gupta, Co-founder and Chief Investment Officer, of Wint Wealth, an online investment platform had told ET Online.
PPF interest rate
As per the formula notified by the Ministry of Finance in 2016, the PPF has a spread of 25 basis points over the benchmark yield. The benchmark 10-year bond yield has averaged 7.14% from June to August 2023, according to data from Investing.com. Going by this formula, the PPF interest rate should be 25 basis points higher than the average 10-year G-sec yield of the corresponding maturity. So going strictly by this formula, the PPF rate should ideally be 7.39%. However, the government has yet again not raised the PPF rate despite the formula suggesting a higher rate even in previous quarters.
Last time interest rates were hiked
The government hiked the interest rates of small savings schemes by up to 30 bps for the July-September 2023 quarter. The interest rates of schemes like the 1-and 2-year post office time deposit, 5-year recurring deposits were hiked by up to 30 bps. The interest rate on the Public Provident Fund (PPF) was kept unchanged at 7.1 per cent.
The Reserve Bank of India (RBI) has been increasing key rates since May 2022. Due to this, banks have been increasing interest rates on fixed deposits (FD) which is good news for FD investors who have been sitting with decadal low interest rates. However, since the last three policy meetings the RBI has hit the pause button and has maintain status quo on key rates.
Due to this many banks have also gone slow on FD rate hikes, some have even cut rates.
FDs, bank savings accounts or small saving schemes?
Even though banks have started increasing FD interest rates, many small savings schemes are still earning higher interest rates.
SBI’s FDs across 7 days to 10-year tenors, as on February 15, 2023, earn 3 per cent to 7 per cent. Senior citizens, who earn 0.5 per cent more, will get 3.5 percent to 7.5 per cent for these tenors.
Apart from fixed deposits, even the interest rates on savings accounts offered by some of the bigger banks is lower than the interest rate on the post office savings account.
Post office savings account is currently offering 4 per cent per annum whereas SBI is offering 2.70 per cent per annum interest rate on its savings account. Similarly, ICICI Bank is offering 3-3.5 per cent per annum.