Interest on small savings slashed by 0.2 percentage points

The government has announced rate cut for all schemes except for savings deposit and for 5-year senior citizen savings scheme that earns an interest of 8.3 per cent.

A finance ministry notification said rates have been reduced across the board for schemes such as National Savings Certificate (NSC), Sukanya Samriddhi Account, Kisan Vikas Patra (KVP) and Public Provident Fund (PPF).

In a move that will hurt investors of small saving schemes and may prompt banks to cut their deposit rates, the government on Wednesday announced a 20 basis point cut in interest offering on small savings schemes including on public provident fund and National Savings Certificate for the March quarter. While the interest on PPF and NSC will come down to 7.6 per cent, that on a 5-year and 1-year time deposit will come down to 7.4 per cent and 6.6 per cent, respectively.

The government has announced rate cut for all schemes except for savings deposit and for 5-year senior citizen savings scheme that earns an interest of 8.3 per cent. The girl child savings scheme Sukanya Samriddhi Account will offer 8.1 per cent from existing 8.3 per cent annually while the five-year recurring deposit is pegged at 6.9 per cent.

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The government has been recalibrating the interest rates on all small savings schemes since April 2016 when it announced a sharp cut in interest rates. While the government had slashed the interest rate payable on 1- year time deposit from 8.4 per cent to 7.1 per cent, it also cut the rate on PPF scheme to 8.1 per cent for the April to June 2016, from 8.7 per cent for 2015-16. With the latest cut, the interest on PPF has been slashed by an aggregate of 110 bps from 8.7 per cent in 2015-16 to 7.6 per cent for the March quarter.

The interest rate on 1-year time deposit has been rationalized by 180 basis points in the same period. The interest offering for Kisan Vikas Patra has come down from 8.7 per cent in March 2016 to 7.3 per cent, down 140 basis points and will now mature in 118 months.

“On the basis of the decision of the government, interest rates for small savings schemes are to be notified on a quarterly basis,” the ministry said, while notifying the rates for fourth quarter of financial year 2017-18.

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