Explained: Govt’s small savings rate call today – what to expect?

The interest rates on small savings schemes were revised for the first quarter of 2021-22 (April-March) being reduced sharply by 40-110 basis points but the decision was later rolled back.

Written by Pranav Mukul

+1 More

New Delhi | Updated: June 30, 2022 12:53 PM IST

3 min read

As of Thursday, India 10-year Bond yield was at 7.424 per cent, compared with 6.843 per cent on March 31. (Representational Photo)

The central government will Thursday announce its decision on interest rates on small savings instruments for the July-September quarter. Interest rates on small savings schemes are reset on a quarterly basis, in line with the movement in benchmark government bonds of similar maturity. Last quarter, the government had decided to maintain the status quo.

How does the government decide small savings rates?

Typically, small savings rates are linked to yields on benchmark government bonds, but despite the movement in G-Sec (government securities) yields, the government has not reduced the interest rates in the last two years.

However, analysts have indicated a possibility of the interest rates being raised this time given the increase in G-Sec yields over the last quarter. As of Thursday, India 10-year Bond yield was at 7.424 per cent, compared with 6.843 per cent on March 31. Notably, the Reserve Bank of India has also raised the policy interest rate by 90 basis points during the April-June quarter.

What are the various rates applicable on small savings instruments?

Among the most popular fixed income products, Public Provident Fund (PPF) fetches 7.1 per cent, while National Savings Certificate yields 6.8 per cent. Rates on the girl child savings scheme, Sukanya Samriddhi Yojana, are 7.6 per cent. The interest rates on savings deposits continue to be 4 per cent per annum. Term deposits of one to five years fetch an interest rate in the range of 5.5-6.7 per cent, to be paid quarterly, while the interest rate on five-year recurring deposits earn a higher interest of 5.8 per cent.

When was the last time these rates were changed?

The interest rates on small savings schemes were revised for the first quarter of 2021-22 (April-March) being reduced sharply by 40-110 basis points but the decision was later rolled back, with the Union Finance Minister saying that the “orders issued by oversight shall be withdrawn”.

Story continues below this ad

The reduction of interest rates and the subsequent withdrawal had happened in the run up to the West Bengal Assembly elections. Prior to that, the interest rates were revised two years ago for the first quarter of 2020-21.

Newsletter | Click to get the day’s best explainers in your inbox

Aanchal Magazine

Aanchal Magazine is a Senior Assistant Editor with The Indian Express, serving as a leading voice on the macroeconomy and fiscal policy. With over 13 years of newsroom experience, she is recognized for her ability to decode complex economic data and government policy for a wider audience. Expertise & Focus Areas: Magazine’s reporting is rooted in "fiscal arithmetic" and economic science. Her work provides critical insights into the financial health of the nation, focusing on: Macroeconomic Policy: Detailed tracking of GDP growth, inflation trends, and central bank policy actions. Fiscal Metrics: Analysis of taxation, revenue collection, and government spending. Labour & Society: Reporting on labour trends and the intersection of economic policy with employment. Her expertise lies in interpreting high-frequency economic indicators to explain the broader trajectory of the Indian economy. Personal Interests: Beyond the world of finance and statistics, Aanchal maintains a deep personal interest in the history of her homeland, Kashmir. In her spare time, she reads extensively about the region's culture and traditions and works to map the complex journeys of displacement associated with it. Find all stories by Aanchal Magazine here ... Read More

Tags:

Explained Economics Express Explained small savings