Interest rates on eight small savings schemes raised from January 1, 2023; PPF rate unchanged

Customers wait to deposit their money at a post office in New Delhi.
| Photo Credit: Reuters

The Central government on Friday raised interest rates on eight of the 12 small savings schemes by 20 to 110 basis points for the January to March 2023 quarter, but left the returns on the popular Public Provident Fund (PPF) unchanged at 7.1% for the eleventh quarter in a row. One basis point or bps equals 0.01%.  

The Sukanya Samriddhi Account Scheme’s return was also retained at 7.6%, prevailing since April 2020 when small savings schemes’ rates were cut across the board. The returns on Kisan Vikas Patra (KVP) and the National Savings Certificate (NSC) were raised by just 20 bps each, to 7.2% and 7%, respectively. 

This is the second successive quarter that the government has effected selective hikes in small savings rates. Economists said that the increases were lower than expected, given the increase in interest rates and high inflation in recent quarters.  

For the ongoing October to December quarter, rates were raised — for the first time since January 2019 — by a marginal 10 to 30 bps for just five of the 12 schemes. As per Reserve Bank of India calculations, the small savings rates which are pegged by a formula to the yields on government securities, were 44 to 77 bps below their formula-implied rates for nine of the 12 schemes this quarter.  

The PPF return for October to December, as per the formula, should have been 7.72% instead of the existing 7.1%, while the Sukanya Samriddhi Account should have been paid 8.22% instead of 7.6%.  

Returns on the Senior Citizens’ Savings Scheme and the Monthly Income Account Scheme have been raised by 40 bps each, taking them to 8% and 7.1%, respectively.  

“The size of the upward revision in rates of some small savings schemes is smaller than what we had anticipated,” ICRA chief economist Aditi Nayar told  The Hindu. 

The Senior Citizens’ Savings Scheme’s returns were raised from 7.4% to 7.6% for this quarter, while the formula-determined rate was 8.04%. Thus, its rate hike to 8% for the coming quarter almost bridges the entire deviation from the formula-based rate.  

However, there was a higher gap between the formula-based rate of 7.5% for the October to December quarter and the new rates for the next quarter in the case of the NSC (7.1%) and KVP (7.2%).  

Time deposits for one, two and three years, have been granted the sharpest 110 bps increase in returns, lifting their returns to 6.6%, 6.8% and 6.9%, respectively. 

Five year time deposits will earn 7% in the first quarter of 2023 instead of 6.7% in the current quarter, while five year recurring deposits will continue to earn a 5.8% return, the same rate as before.