With two successive pauses in policy repo rates and banks cutting interest rates on fixed deposits, small savings schemes may not see any change in interest rates for the three-month period starting July 1.

The Finance Ministry is scheduled to announce rates for the second quarter on Friday. Small savings schemes have a subscriber base of more than 40 crore, and the basket comprises 12 instruments, including the National Savings Certificate (NSC), Public Provident Fund (PPF), Kisan Vikas Patra (KVP) and Sukanya Samridhhi Account (SSA). Some schemes such as the NSC, SSA and PPF get tax benefits.

The amount deposited in a running scheme or a fresh deposit made during the first quarter will attract the revised rate. The government aims to issue securities against small savings worth more than ₹4.71-lakh crore during FY24, to bridge the fiscal deficit. In FY23, it was around ₹4.39-lakh crore.

For the quarter ended on Friday, the Ministry raised the rate for all but one small saving scheme by 70 basis points. It was the third successive quarter in which a rate hike was effected. However, there was no change in the public provident fund (PPF) interest rate.

In the April-June quarter, depositors in the 5-year NSC got interest at 7.7 per cent for money deposited in quarter. The rate was 70 bps lesser in the fourth quarter of FY23. Similarly, the five-year time deposit got a 7.5 per cent rate of interest in Q1, as against 7 per cent in Q4 FY23. The senior citizen savings scheme had the highest rate of interest at 8.2 per cent (8 per cent).

Also read: NSC offers 7.7 %. Should you invest?

Theoretically, since 2016, interest rate re-setting has been based on yields of government securities of the corresponding maturity, with some spread on the scheme for senior citizens, as advised by the Shyamala Gopinath Committee. However, in practice, interest rate changes are made considering several other factors, including political ones.   

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