By Elton Gomes
The government on Thursday decided to raise the interest rates of small savings schemes by 30-40 basis points for the October-December quarter of the current financial year. The schemes included in the list are the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC), and post office time deposits, the Economic Times reported.
Interest rates for such schemes are revised on a quarterly basis and the rates have been benchmarked to market interest rates since April 2016. Interest rates have hence been raised, so that they are in sync with hardening as g-sec or government securities yields. The last revision in interest rates was made in the January-March quarter of 2017-18.
Which schemes have been included?
After the increment in savings schemes, investment in the PPF and NSC will now offer an annual interest rate of 8% – an increase from the existing 7.6%.
The Kisan Vikas Patra (KVP) will return a 7.7% return on investment. The finance ministry has also reduced the maturity period for the same scheme, bringing it down from 118 months to 112 months.
The Sukanya Samriddhi savings scheme will yield an interest rate of 8.5% which has increased from 8.1%.
The savings scheme for senior citizens has also been increased from 8.3% to 8.7%. For senior citizens, the new interest rate for 5-year term deposit is 7.8%, and the rate for 5-year recurring deposit is 7.3%. However, interest on savings deposits has been retained at 4%, India Today reported.
The expectation of a hike in interest rates was on the cards for quite some time. The interest rates on such schemes are calculated by adding a mark-up to the average of the government yield in the previous quarter.
How will the hike help investors?
The increment in savings schemes will certainly benefit fixed income investors. The interest rates had previously remained unchanged for the past two quarters and a reduction was noted in the interest rates on small savings schemes in the January-March 2018 quarter.
Earlier in June and August 2018, the Reserve Bank of India (RBI) had hiked the repo rate cumulatively by 50 basis points in its monetary policy announcements. The hike directly impacted borrowers as banks started increasing interest rates on loans.
Elton Gomes is a staff writer at Qrius