The government has effected minor hikes of 0.1% to 0.3% in interest rates payable on five small savings instruments, including Kisan Vikas Patra, Senior Citizens’ Savings scheme and time deposits for two and three years, for the quarter beginning 1 October.
With the revision, a three-year time deposit with post offices would earn 5.8 per cent from the existing 5.5 per cent, an increase of 30 basis points for the third quarter of the current financial year.
Senior Citizen Savings scheme will earn 20 basis points more to 7.6 per cent from the existing rate of 7.4 per cent during the October-December period, a finance ministry notification said.
With regard to Kisan Credit Card, the government has revised both tenure and interest rates.
Meanwhile, there is no change in interest rates of seven other designated small savings schemes, including the Public Provident Fund (PPF) at 7.1%, Sukanya Samriddhi Account Scheme at 7.6%, National Savings Certificate (6.8%) as well as five-year recurring and time deposits (5.8% and 6.7%, respectively). Returns on savings deposits and one-year time deposits are also kept static at 4% and 5.5%.
The Reserve Bank since May has raised the benchmark lending rate by 140 basis points, prompting banks to raise interest rates on deposits as well.
How are interest rates of PPF, Sukanya Samriddhi Accounts, other small savings scheme calculated?
The interest rates of small savings schemes are aligned with the yields of the government securities (G-sec) of similar maturity, according to the earlier mentioned press release by the Finance Ministry. The Union government reviews the interest rate of small savings schemes every quarter based on the G-Sec yields of the previous three months, according to the mentioned release by the Finance Ministry. This is in line with the recommendations of the Shyamala Gopinath Committee, 2011 to ensure that the interest rates of small savings schemes are market-linked.
The interest rates of the small savings schemes are linked to market yields on G-secs with a lag and are reviewed, fixed on a quarterly basis at a spread ranging from 0-100 basis points over (100 basis points = 1 per cent) and above G-Sec yields of comparable maturities, according to the Reserve Bank of India (RBI).