The Government has held small savings rates including Public Provident Fund (PPF) and Senior Citizens’ Savings Scheme (SCSS) constant even as banks have reduced FD rates over the past few months. The bank rate cuts have been spurred by RBI policies aimed at supporting the Covid 19 hit economy.
The PPF rate has been held at 7.1%. Post office term deposit rates continue to be 5.5% for deposits of 1-3 years and 6.7% for the 5 year deposit. In contrast, the State Bank of India revised its FD rates downwards on 27th May. The SBI FD rates now range from 2.9% (for deposits of 7 to 45 days) to 5.4% (deposits of 5 to 10 years) for deposits less than 2 crore. Even large private sector banks like HDFC Bank offer fairly similar rates to SBI. In the case of HDFC, they range from 2.75% (7 to 14 days) to 5.5% (5 years, 1 day to 10 years) for deposits less than 2 crore.
The NSC which has a tenor of 5 years is particularly competitive against 5 year bank FD rates. The NSC rate has been held constant at 6.8%. Once an NSC is purchased, the rate remains locked in for the tenor of the NSC. The highest small savings rate is the Sukanya Samriddhi Scheme interest rate of 7.6%. However this is only available to the parents of a girl child below the age of 10.
Some small savings schemes like SCSS are only available to senior citizens. SCSS has a term of 5 years which can be extended by another 3 years. It also has a maximum investment limit of ₹15 lakh per individual. However its rate is substantially higher than bank FD rates for senior citizens. For example, the highest SBI rate for senior citizens is 6.20%, lower than the 7.4% on the SCSS.
“Given the current covid situation, small savings interest rates still are attractive for conservative investors depending on their time horizon. Short term deposit / savings deposit investors can look at parking their money in overnight, liquid and high quality ultra shot duration funds for better liquidity," said Rushabh Desai a Mumbai based financial planner.