The center on Tuesday has slashed interest rates on small savings schemes by up to 1.4 percent for the first quarter i.e. April-June quarter of the financial year 2020-21, in line with a moderation in bank deposit rates. Starting today, interest rates on popular small savings schemes like Public Provident Fund (PPF), National Savings Certificate (NSC), Kisan Vikas Patra (KVP) and others will earn lower interest during the period. Interest rates for small savings schemes are notified on a quarterly basis. The move came days after the Reserve Bank of India (RBI) announced 75 basis-points cuts in the policy rate.
Govt Cuts Interest Rates on PPF
While the interest rate on savings deposit was kept unchanged at 4 percent, it was reduced by 80 basis points for the popular PPF scheme to 7.1 percent. The interest fetched on PPF in the previous quarter was 7.9 percent.
It is worth noting that the government reviews the interest rate on small savings schemes every quarter based on bond yields.
Moving on, the interest rate on five-year NSC has been lowered to 6.8 percent against 7.9 percent earlier. KVP stands at 6.9 percent against earlier 7.6 percent.
Meanwhile, the Sukanya Samriddhi Scheme interest rate has dipped to 7.4 percent from the previous 8.4 percent a 100 basis point or 1 percent interest rate cut.
The interest rates on five senior citizen savings scheme have also been reduced significantly by 120 basis points to 7.4 percent from 8.6 percent earlier.
Additionally, the five-year monthly income scheme will also fetch less at 6.6 percent, down 100 basis points from a 7.6 percent rate offered on it earlier. Interest rates on term deposits ranging from 1 to 5 years will also be lower at 5.5-6.7 percent.
The interest rate on the five-year recurring deposit scheme has now fallen to 5.8 percent from the previous 7.2 percent a 140 basis point or 1.4 percent drop.
Devendra Pant, the chief economist at India Ratings, said that the move will reduce the gap between what banks give as deposit rates and earnings from small savings scheme, which would help in low-interest regime in the country.
However, PPF is still an attractive option, giving 7.1 percent interest income that is tax-free. He said, “It is still one of the best risk-free schemes, if not the best.”
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