Money & Banking

Small savings schemes will fetch lower returns

Our Bureau New Delhi | Updated on June 28, 2019 Published on June 28, 2019

Centre trims interest rates by 10 basis points

Small savings such as National Saving Certificates and Public Provident Fund will give you lower returns between July 1 and September 30 as the Centre has decided to lower the interest rate on these schemes by 10 basis points (100 bps = 1 percentage point).

Fresh accounts opened under Kisan Vikas Patra during this three-month period will take one more month to mature and the money will double in nine years and five months as against nine years and four months for accounts opened till June 30.

Meanwhile, the interest rate on small savings is still higher than that of bank deposits. A five-year NSC will give you 7.9 per cent, while a term deposit below ₹2 crore with a maturity period of five years in SBI will fetch 6.6 per cent (7.1 per cent for senior citizens).

 

 

Based on the recommendations of the Shyamala Gopinath panel, interest rates on these schemes are reviewed before the end of every quarter and accordingly new rates are announced for the next quarter. In an effort to bring them in tune with the market, these rates are aligned to rates on government bonds of similar maturities with a certain spread, which is highest for senior citizen schemes.

Since the yield on 10-year government bonds has gone down, interest rates on small savings have been revised downwards. Many of these schemes offer tax benefit under the Income-Tax Act, which is why these schemes are popular among salaried people. Another benefit is that one does not have to pay any tax even on withdrawal from PPF after maturity.

 

Published on June 28, 2019
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