Interest rates on small savings schemes, including the Public Provident Fund and Sukanya Samriddhi Scheme, will remain unchanged for the 7th successive quarter starting July 1, according to a Finance Ministry office memorandum issued on Tuesday.

While no official reason was provided, the decision aims to encourage household savings by maintaining the schemes’ attractiveness over alternative investments such as the equity market.

This stability, however, poses a challenge for banks. Following recent cuts in policy interest rates and the Cash Reserve Ratio (CRR) by the Monetary Policy Committee (MPC), and the subsequent reduction in bank deposit rates, banks may struggle to attract deposits when small savings schemes offer more appealing returns.

Tax benefits

At present, there are 12 small savings schemes, including savings accounts. Several of these, such as National Saving Certificates, the Public Provident Fund, the Sukanya Samriddhi Scheme and the Senior Citizen Savings Scheme, offer tax benefits. While interest rates on these schemes are reviewed quarterly, most have remained unchanged since the July-September quarter of the previous year, with only minor adjustments in a few cases.

Indian retail bank deposits typically have a short average tenor, usually ranging from 1.5 to 3 years. This is a stark contrast to government-backed small savings schemes, such as the Public Provident Fund (15-year tenure), the Sukanya Samriddhi (up to 21 years), and the Senior Citizens Savings Scheme (5 years), which offer investors considerably longer lock-in periods and more predictable returns.

Atul Shinghal, founder and CEO of Scripbox, noted that these schemes appear far more appealing to many savers, especially risk-averse households, in an environment of falling interest rates. This appeal is further magnified by the fact that two- to three-year bank fixed deposit rates have already declined to the 6.5-7 per cent range across most lenders.

Deposit rates

As expected, banks have responded by lowering deposit rates. However, small savings scheme rates, which are administratively set by the government, have largely remained unchanged for over two years. According to experts, many of these schemes continue to offer interest rates ranging from 7.1 per cent to 8.2 per cent, and several come bundled with tax advantages. This growing spread between Small Savings Schemes (SSS) and bank deposit rates is creating a structural challenge in mobilising retail deposits, especially as credit demand remains robust.

Published on June 30, 2025