Small savings schemes are crucial for financial savings in India. The general public invests through PPF, NSC, Post Office Saving Schemes, EPF, KVP, and other small savings schemes. Small Savings Schemes are an important component of household savings in India. The money invested by the households in India is channelized to the Government, which uses it to finance the Government Expenditure.
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The small savings schemes operate through the nation-wide postal network. The public sector banks and some private sector banks support small savings schemes in India.
See Also: How To Open PPF Account Online?
Post Office Deposits: Post Office Time Deposits, Post Office Savings Accounts, Post Office Recurring Deposits and Post Office Monthly Income Schemes (POMIS).
Savings Certificates: National Savings Certificate, PPF, SCSS, KVP and Sukanya Samriddhi Account.
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See Also: Why PPF is a Great Investment?
The small savings schemes interest rates are revised each quarter. They depend on the Government Bond Yields in the previous quarter. Government Bond Yields are the interest the Government pays for borrowing money. The 10-Year Bond Yield was 6.5% in January 2020. The Government looks into Government Bond Yields of similar maturity to the small savings schemes and a spread is added to arrive at the small savings schemes rates.
The small savings schemes rates are set based on suggestions of the Shyamala Gopinath Committee. The interest rates of different small savings schemes would be 25-100 bps higher than Government Bond Yields of similar maturity.
See Also: How to Transfer PPF Account?
For the January-March 2020 quarter, the small savings schemes interest rates on PPF, NSC and other small savings schemes interest rates remain unchanged.
Bank FD rates are falling over the past few months. As RBI has cut repo rate by 135 bps in 2019, banks have cut home loan rates and also FD rates. This has forced investors to look at small savings schemes which offer higher interest rates.
Pensioners are having a tough time as FD rates fall. Pensioners have lost around Rs 5,845 each year to falling interest rate regime.
If you look at SBI FD rates in August 2019, SBI one-year FD rates were 6.8% for normal citizens and 7.3% for senior citizens. If you look at SBI one-year FD rates in November there were 6.25% and 6.75% respectively. With a 55 bps cut in just 3 months, pensioners have no choice but to look at small savings schemes.
The Government has kept small savings schemes rates unchanged for the Jan-March 2020 quarter. This is great for senior citizens.
PSU and Private Sector Banks cannot cut FD rates beyond a particular limit as investors would shift money to small savings schemes. If banks can’t cut FD rates, then lending rates like home loan rates won’t be cut. Even though RBI has cut repo rates by 135 bps from February to October 2019, the weighted average lending rates on fresh rupee loans has gone down by just 44 bps. This is the main reason why your home loan rates are not going down.
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