The Department of Economic Affairs (DEA), Ministry of Finance (MoF) has announced an interest rate hike on various Small Savings Schemes for the first quarter of the financial year 2023-24 ( Q1 FY24) (i.e. April 1, 2023 to June 30, 2023), marking the third consecutive quarter of rate hikes.
- Small Savings Schemes have about 40 crore subscribers, and the basket includes 12 instruments such as the National Savings Certificate (NSC), Public Provident Fund (PPF), Kisan Vikas Patra (KVP), Sukanya Samridihi Account (SSA), Monthly Income Savings Scheme, all post office time deposits, etc.,
- The interest rate on these savings instruments has been raised by 10-70 basis points (bps) [one percentage point is equivalent to 100 bps].
However, the interest rate for PPF scheme has been kept unchanged at 7.1% over Q1 FY24, and its returns have remained constant at 7.1% for the last three years.
Note: Specific schemes, like the NSC, SSA, and PPF, receive tax benefits.
Key Details Regarding Increased Interest Rates
i.The National Savings Certificates (NCS) witnessed the highest increase in rate, which increased from 7% to 7.7% from January to June.
ii.The interest rates on small savings schemes hiked by 10-70 basis points across various instruments, and they are currently in the range of 4% to 8.2%
iii.With the revision, the interest rate on a one-year term deposit at the post office would increase from 6.6% to 6.8%; for a 2-year term deposit, it would increase from 6.8% to 6.9%; for a 3-year term deposit, it would increase from 6.9% to 7%; and for a 5-year term deposit, it would increase from 7% to 7.5%.
- The interest rate on 5-year recurring deposits was increased from 5.8% to 6.2%.
iv.The interest rate on the Monthly Income Account Scheme has been increased from 7.1% to 7.4%.
v.The interest rate for Senior Citizen Savings Schemes has been increased from 8% to 8.2%.
vi.The rate for Kisan Vikas Patras was hiked from 7.2% to 7.5%. The scheme will now mature in 115 months, rather than 120 months previously.
vii.The interest rate for the Sukanya Samriddhi Account scheme, which is intended for girl children, will be 8% from April to June 2023 as opposed to 7.6%.
Revised Rate of Interest of Various Small Savings Scheme for Q1 FY24
| No. | Instruments | Rate of Interest from January 01, 2023 – March 31, 2023 | Rate of Interest from April 01, 2023 – June 30, 2023 |
|---|---|---|---|
| 1 | Savings Deposit | 4% | 4.0% |
| 2 | 1 year Time Deposit | 6.6% | 6.8% |
| 3 | 2 year Time Deposit | 6.8% | 6.9% |
| 4 | 3 year Time Deposit | 6.9% | 7.0% |
| 5 | 5 year Time Deposit | 7.0% | 7.5% |
| 6 | 5 year Recurring Deposit | 5.8% | 6.2% |
| 7 | Senior Citizen Savings Scheme | 8.0% | 8.2% |
| 8 | Monthly Income Account Scheme | 7.1% | 7.4% |
| 9 | National Savings Certificate (NSC) | 7.0% | 7.7% |
| 10 | Public Provident Fund (PPF) Scheme | 7.1% | 7.1% |
| 11 | Kisan Vikas Patra (KVP) | 7.2% (will mature in 120 months) | 7.5% (will mature in 115 months) |
| 12 | Sukanya Samriddhi Account (SSA) Scheme | 7.6% | 8.0% |
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Key Information Â
i.The GoI reviews the interest rates for small savings plans on a quarterly basis.
ii.Although the Reserve Bank of India (RBI) sets small savings interest rates, they are linked to market yields on government securities (G-secs) with a lag and are reviewed and fixed quarterly at a spread of 0-100 basis points (bps) over (100 bps = 1%) and above G-sec yields of comparable maturities.
iii.This increase in rates comes into picture as the Government of India (GoI) prepares to issue securities against small savings of more than Rs. 4.71 lakh crore during FY24 as a source to bridge the fiscal deficit.
- It is projected to be roughly Rs. 4.39 lakh crore for FY23.
iv.Despite the fact that the GoI has increased the rates on a few small savings schemes over the previous two quarters, this time there are more schemes with higher rates.
v.It should be noted that the higher rate will only be applicable to deposits made during the Q1 FY24, whether they are part of a running scheme or fresh deposits.
Note: The FY24 budget proposed a new small savings scheme, the Mahila Samman Savings Certificate, which will be available for two years, until March 2025. Â
Rate Hike by RBI
i.Since May 2022, the Reserve Bank of India (RBI) has hiked the benchmark lending rate by 2.5 % to 6.5 %, encouraging banks to raise interest rates on deposits as well.
ii.In February 2023, the RBI increased the repo rate, or short-term lending rate, by 25 bps.
iii.This was the sixth consecutive rate hike, following a 40 bps increase in May 2022 and 50 bps hikes in June, August, and September 2022.
iv.The benchmark rate has been increased by 2.5 % overall by the RBI since May 2022.
Recent Related News:
i.In January 2023, the Shyamala Gopinath Committee provided the formula to calculate the interest rates for the small savings scheme.
ii.The committee recommended that the interest rates on various schemes be 25-100 bps higher than the yields on government bonds of similar maturity.
About Ministry of Finance (MoF):
Union Minister – Nirmala Sitharaman (RajyaSabha- Karnataka)
Ministers of State (MoS) – Pankaj Chaudhary; Dr. Bhagwat Kishanrao Karad
Departments under the MoF – Department of Expenditure; Department of Economic Affairs (DEA); Department of Revenue; Department of Financial Services; Department of Investment and Public Asset Management (DIPAM) & Department of Public Enterprises.
