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Interest rates on small savings schemes, such as public provident fund, national savings certificate, Kisan Vikas Patra  and various post office schemes have been hiked.  Photo: AFP
Interest rates on small savings schemes, such as public provident fund, national savings certificate, Kisan Vikas Patra and various post office schemes have been hiked. Photo: AFP

Small savings interest rates hiked: A look at the changes

The hike in small savings interest rate is a signal to banks to raise savings deposit rates after two consecutive interest rate hikes by RBI

New Delhi: The government has hiked interest rate on small savings schemes, in a signal to banks to raise savings deposit rates after two consecutive interest rate hikes by the Reserve Bank of India (RBI).

According to a finance ministry’s statement announcing the new small savings interest rates, a public provident fund (PPF) will now fetch 8% interest rate for the October-December quarter, up from 7.6% in the current quarter.

The Sukanya Samriddhi Account scheme will now fetch 8.5% interest rate as compared to 8.1% earlier.

The interest rate on Kisan Vikas Patra (KVP) has been hiked to 7.7% from 7.3%. This means that KVP will now mature or double in 112 months as compared to 118 months earlier.

The five-year National Savings Certificate (NSC) will now fetch 8%, the same rate as that of PPF, from 7.6% currently.

The interest rate on popular 5-year Senior Citizen Savings Scheme has been hiked to 8.7% from 8.3%. Similarly, the interest rate on post office Monthly Income Scheme (MIS) has been hiked to 7.7% from 7.3%.

The five-year post office recurring deposit scheme will fetch 7.3%, from 6.9% earlier. The interest rate on post office term deposits have also been hiked. The five-year post office time deposit will offer an interest rate of 7.8%, up from 7.4%. Investment in five-year post office deposit also qualifies for income tax benefits under Section 80C. The 3-year post office deposit will now fetch 7.2% (up from 6.9%), 2-year deposit 7% ( up from 6.7%) and the 1-year deposit 6.9% ( up from 6.6%).

The post office savings deposit interest rate has been kept unchanged at 4%.

The interest rate on small savings schemes, which are benchmarked to yields on government bonds, are revised on a quarterly basis. With the 10-year benchmark yield now above 8%, many analysts had expected the government to hike interest rate on small savings schemes.

After the June meeting, RBI had raised its repo rate again in August, but retained its “neutral" stance as it aimed to contain inflation while not choking growth. With the interest rate on small savings scheme going up sharply, banks will now be under pressure to increase savings account deposit rates.

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