The Department of Economic Affairs (DEA), a department of the Ministry of Finance (MoF), has raised the interest rate on a number of small savings schemes for the fourth quarter (Q4) of the current fiscal year 2022–23 (FY23), which runs from January 1, 2023 – March 31, 2023.
Various Small Savings Schemes with Increased Interest Rates
i.The rates on the various instruments have increased by 20 to 110 basis points (bps), and they now range from 4.0 % to 7.6 %.
ii.All post office time deposits, the Kisan Vikas Patra (KVP), the Senior Citizen Savings Scheme, the Monthly Income Savings Scheme, the National Savings Certificate, and others now have higher interest rates.
- Meanwhile, the interest rates on the Public Provident Fund (PPF), Sukanya Samriddhi Account, and Savings Deposit have remained unchanged.
| # | Instrument | Rates of Interest (%) from 01.01.2022 to 31.12.2022 | Rates of Interest (%) from 01.01.2023 to 31.03.2023 |
|---|---|---|---|
| 1. | Savings Deposit | 4.0 | 4.0 |
| 2. | 1 Year Time Deposit (TD) | 5.5 | 6.6 |
| 3. | 2 Year Time Deposit (TD) | 5.7 | 6.8 |
| 4. | 3 Year Time Deposit(TD) | 5.8 | 6.9 |
| 5. | 5 Year Time Deposit (TD) | 6.7 | 7.0 |
| 6. | 5 Year Recurring Deposit (RD) | 5.8 | 5.8 |
| 7. | Senior Citizen Savings Scheme(SCSS) | 7.6 | 8.0 |
| 8. | Monthly Income Account Scheme (MIS) | 6.7 | 7.1 |
| 9. | National Savings Certificate (NSC) | 6.8 | 7.0 |
| 10. | Public Provident Fund (PPF) Scheme | 7.1 | 7.1 |
| 11. | Kisan Vikas Patra (KVP) | 7.0 (will mature in 123 months) | 7.2 (will mature in 120 months) |
| 12. | Sukanya Samriddhi Account Scheme (SSAS) | 7.6 | 7.6 |
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Estimation of Interest Rates for Small Savings Schemes
i.The GoI reviews the interest rates for small savings plans on a quarterly basis.
- According to the Reserve Bank of India (RBI), although the GoI sets the small savings interest rates, they are linked to market yields on government securities (G-secs) with a lag and are reviewed and fixed on a quarterly basis at a spread between 0-100 bps over (100 bps = 1%) and above G-Sec yields of comparable maturities.
- The interest rates on small savings, however, have not consistently followed changes in market rates.
ii.The Shyamala Gopinath Committee provided the formula to calculate the interest rates for the small savings scheme.
- The committee recommended that the interest rates on various schemes be 25-100 bps higher than the yields on government bonds of similar maturity.
iii.The GoI administers small savings schemes, such as post office 1-3-year time deposits and 5-year recurring deposits, to encourage people to save money on a regular basis.
- There are several other types of savings certificates, including National Savings Certificates, Kisan Vikas Patra (KVP), Sukanya Samriddhi Account, and Senior Citizens Savings Scheme.
A Comparison of FDs, Bank Savings Accounts or Small Savings Schemes
i.Even when banks have started raising the interest rates on fixed deposits (FDs), many small savings schemes continue to provide higher interest rates.
- As of December 19, 2022, the interest rates on State Bank of India (SBI) FDs range from 3 % to 6.75 % for 7-days to 10-year tenors.For these tenors, senior citizens earning 0.5 % higher will receive 3.5 % to 7.25 %.
ii.Even the interest rates on savings accounts offered by some of the larger banks, apart from FDs, are less than the interest rate on post office savings accounts.
- While SBI is currently offering 2.70% per annum on its savings account, Post Office Savings Account is currently offering 4% annually.
- Similarly, ICICI Bank offers 3-3.5% annual interest.
Recent Related News:
In November 2022, The Infrastructure Finance Secretariat (IFS), Department of Economic Affairs (DEA) under the Ministry of Finance (MoF), GoI notified India Infrastructure Project Development Fund Scheme (IIPDF Scheme), a Central Sector Scheme (CSS) for providing Financial Support for Project Development Expenses of Public Private Partnership (PPP) Projects.
About the 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.
