Small Savings Schemes get boost with up to 70 bps interest rate hike, PPF stays steady

Investors can rejoice as the government increased interest rates for all modest savings programmes, with the exception of the Public Provident Fund (PPF) and post office savings deposit, for the April–June 2023 quarter. This evening, the tariffs were revealed.

The Central Government increased the rate of interest for several small savings programmes, including the Senior Citizen Savings Program, the Sukanya Samriddhi Account Program, the Monthly Income Savings Program, the National Savings Certificate, the Kisan Vikas Patra, and all post office time deposits for the financial year 2023–24's April–June quarter.

The National Savings Certificate (NSC) interest rate was increased from 7 per cent for the January through March 2023 quarter to 7.7 per cent for the April through June 2023 quarter, which is the most significant change.

All post office term deposits (with maturities of 1, 2, 3, and 5 years) now have interest rates that range from 10 to 50 basis points higher. One-tenth of a percentage point is referred to as a basis point.

The 5-year post office term deposit has seen the biggest increase – from 7 per cent for the January through March 2023 quarter to 7.5 per cent for the April through June 2023 quarter. The interest rate on the Sukanya Samriddhi Account Program would also increase from the current 7.6 per cent to 8 per cent.

During the April–June 2023 quarter, the interest rate on the Senior Citizen Savings Plan has increased by 20 basis points, from 8.2 per cent for the January–March 2023 quarter to 8.2 per cent.

In Budget 2023, the Finance Minister increased the maximum deposit amount for this scheme from Rs. 15 lakh to Rs. 30 lakh in order to help senior folks. The interest rate for the Monthly Income Account Program has increased from 7.1 per cent to 7.4 per cent by 30 basis points.

The budget increased the maximum deposit amount for this scheme as well, from 4.5 lakh to 9 lakh rupees for single accounts and from 9 lakh to 15 lakh rupees for joint accounts.

The PPF interest rate of 7.1 per cent and the Post Office savings deposit rate of 4 per cent have, however, been maintained at their previous levels.

According to Aditi Nayar, Chief Economist and Head Of Research and Outreach at ICRA, "As expected, modest savings interest rates have been lifted by 10-70 basis points across multiple instruments" in the most recent quarterly rate review.

Given that the RBI Monetary Policy Committee is projected to raise rates in April 2023, and that those increases will eventually be relayed to bank deposit rates, this could help to attract steady deposits in the coming quarter.

Every quarter, the interest rates of these schemes undergo a review. In the previous quarterly review on December 30, 2022, many of the schemes experienced an increase in interest rates ranging from 20 to 110 basis points, which is applicable for the January-March 2023 quarter. Prior to this, there had been a minor hike in a few schemes during the September 29, 2022 review.

The small savings schemes are a favored low-risk investment choice, given their government backing. The funds collected through these schemes are utilized by the central government to finance its fiscal deficit.