There is good news for those people who believe in fixed-income investment. The Government of India has decided not to change the rate of interest of the small savings schemes for the quarter ending September 2021. It is the fifth time in a row where the government has not made any changes in the interest rates of the small savings schemes.
The small savings schemes scheme in India generally includes various post-office-related schemes. Public Provident Fund (PPF), National Savings Certificate (NSC) Sukanya Samriddhi Yojana (SSY) are some of the schemes in the category of small savings schemes of post offices.
It means that the people who would invest in PPF or NSC would earn the same rate of interest that people were accumulating in the quarter that ended on 30th June 2021. The person who has invested previously and the new investors would continue earning the same interest rate on their investment in small savings schemes.
The Indian Finance Ministry announced it on 30th June 2021 by a circular. As per the circular, Public Provident Fund would continue earning an interest rate of 7.10% per annum, and the National Savings certificate investors would earn an interest rate of 6.8%. The post office monthly income scheme account holder would keep earning 6.6% per annum.
Rate Cut In The Small Savings Scheme- On 31st March 2021, the Government of India had announced a cut in the rate of interest for the small savings schemes. It was for the quarter ending 30th June 2021.
On the evening of 31st March 2021, the finance ministry of the Government of India had announced that the rate of interest of the small savings schemes had been cut for the small savings schemes by 40-110 basic points. It was announced for the first quarter of 2021-2022.
With this, the interest rate in the small savings scheme would have been reduced by 110-250 bps in the current financial year. This cut would have led to a decrease in the interest rate of PPF to 7%.
The next morning, by a tweet, the government of India had again announced that the cut in the rate of interest of the small savings schemes had been rolled off.
Relief To The Debt Investors- The status quo of the government on the small savings scheme has come after a little more than a month before the bi-monthly monetary policy review of the RBI.
The apex bank is all set to again maintain a status quo on the key rates. It is again a thing to cheer for those who invest in financial products that fetch a fixed income to the investor.
As the RBI kept the interest rates unchanged, banks may not cut down the rate of interest on Fixed Deposit Schemes further. Instead, few banks have made a hike in the rate of interest of the Fixed Deposit schemes in their respective banks.
Small Savings Schemes and Fixed Deposits- Even after the banks didn’t make any changes in the rate of interest of their Fixed Deposits; the small savings schemes are still earning high rates of interest.
Apart from that of the FD’s, the interest rate on the savings bank account in some bigger banks is lower than that of the savings account in the post office.
State Bank of India offers an interest rate of 2.7% to their savings account holders. In contrast, the post office is currently offering an interest rate of 4% to their savings account holders annually.
ICICI bank is offering an interest rate of 3% per annum to their savings account holders. Similarly, Kotak Mahindra Bank offers an interest rate of 3.5% per annum on the savings bank account.
Fixing of Rate Of Interest For Small Savings Scheme- The Government of India conducts a review and announces a rate of interest every three months for small savings schemes. The Shyamala Gopinath Committee had suggested the formula to calculate the interest rates for the small savings scheme.
The suggestions made by them was that the rate of interest on various schemes should be about 25-100 basis point higher than that of the government bonds on similar maturities,
Conclusion
The move of the government of India to keep the rate of interest unchanged for the small savings schemes is said to provide some amount of relief to the lower-income earners and the pensioners, a sign of relief amid the rise of inflation in the country. It will help the small savings scheme customers earn the same interest rate without any change in it for the next quarter.
