No change in small savings interest rates

The government on Tuesday announced that is is not tinkering with the interest rate on small savings scheme for the fourth quarter of current fiscal starting January 1 and ending on March 31.

These schemes include National Saving Schemes (NSS), Public Provident Fund (PPF) and Kisan Vikas Patra (KVP) beside post office saving schemes. These schemes are very popular among the salaried class as these instruments are used for tax savings and the returns are much higher than bank fixed deposit.

In an office memorandum issued on Monday, the Department of Economic Affairs said that on the basis of the Centre’s decisions, the rates of interest on various small saving schemes for the fourth quarter shall remain unchanged from those notified for the third quarter (October 1, 2019 to December 31, 2019).

The latest move has surprised everyone as there was widespread expectations of an interest rate cut. Even, last week, the RBI had urged the government to reduce interest rates on small savings. The interest rates on small savings schemes are on average up to 100 basis points higher than the rates prevailing in the market from commercial banks. It is believed that an interest rate cut by the government will facilitate monetary policy transmission by reducing administered interest rates on small savings by bringing them in line with the agreed formula.

On the recommendations of the Shyamala Gopinath panel, starting April 1, 2016, interest rates on 12 small savings schemes are reviewed at the end of every quarter and new rates announced for the next quarter.