Interest rates on small savings schemes unchanged for April-June

Government keeps small savings scheme returns unchanged for April to June quarter, disappointing hopes of pre-election rate hike.

The Centre on March 8 decided to keep the returns offered on various small savings schemes unchanged for the April to June quarter, quashing hopes of a pre-election hike in rates like the one announced ahead of the 2019 Lok Sabha elections.

The rates on small savings are reset every quarter as per a formula. While the Government hiked rates on most schemes over the last six quarters, the return on the popular Public Provident Fund (PPF) scheme, that was hiked to 7.9% ahead of the 2019 elections, has been frozen at 7.1% since April 2020.

As per the Reserve Bank of India (RBI), the PPF return should have been pegged at 7.51% for the October to December 2023 quarter, as per the formula-based rates regime for small savings schemes adopted in 2016.

The Finance Ministry has reasoned that the returns on the scheme, which was launched in the 1960s, need not be hiked as they are fully tax-free, unlike other schemes, and thus their tax-adjusted return is much higher.

However, the returns on the Sukanya Samriddhi Account Scheme (SSAS), which is also tax-free, were hiked to 8% in the April to June 2023 quarter and further hiked to 8.2% for the current quarter. The SSAS was launched by Prime Minister Narendra Modi in 2015 to encourage savings for the girl child.

Apart from the SSAS hike in this quarter, the Government had raised the return on three-year time deposits from 7% to 7.1%, while retaining the rates prevailing in the October to December 2023 quarter on other Small Savings Instruments.

As per the RBI, the 6.7% returns on 5-year Recurring Deposit (RD) accounts were below the formula-based rate of 6.91% in the October to December quarter. But the rate has been retained at 6.7% for this as well as the next quarter.