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What are Small Savings Schemes Rates?

IndianMoney.com Research Team | Posted On Thursday, January 02,2020, 03:34 PM

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What are Small Savings Schemes Rates?

 

 

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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What are Small Savings Schemes Rates?

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?

Groupings of Small Savings Schemes in India:

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.

Want to know more on PPF? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

What are Small Savings Schemes Rates?

Why Small Savings Schemes?

  • The small savings schemes support the social objectives of the Government. Schemes like PPF, Senior Citizens Savings Scheme and Sukanya Samriddhi Scheme support the welfare of the girl child and the senior citizen in India.
  • The Government offers higher interest rates on small savings schemes compared to bank fixed deposits.
  • This is an excellent investment for the low-income segment in India. It secures their future as they go about the daily needs.
  • They are an excellent means of saving taxes. PPF and EPF enjoy the EEE tax benefit. Many of these investments enjoy the Section 80C tax benefit up to Rs 1.5 Lakhs a year.
  • These investments are very safe while offering tax benefits.

See Also: Why PPF is a Great Investment?

How are Small Savings Schemes Interest Rates Calculated?

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?

Small Savings Schemes Rates

For the January-March 2020 quarter, the small savings schemes interest rates on PPF, NSC and other small savings schemes interest rates remain unchanged.

Small Savings Scheme Interest Rates

Why keeping small savings scheme rates unchanged is good for investors?

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.

Banks vs Small Savings Schemes

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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