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PPF, NSC, other post office schemes interest rates remain unchanged for June 30, 2022

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The government has yet again decided to keep the interest rates unchanged on small savings schemes or post office schemes. For the first quarter of FY2022-23 (April-June 2022), interest rates on small savings schemes like the Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) will continue to earn the same interest rate as they were earning during the quarter ending March 31, 2022. The Ministry of Finance made this announcement via a circular dated December 31, 2021.

New investments made during the January-March 2022 quarter into these schemes will also earn the same interest rates as in the previous quarter.

According to the circular, for the first quarter of FY 2022-23, PPF will continue to earn 7.10 per cent. The Senior Citizens Savings Scheme (SCSS) will continue to earn 7.40 per cent, and post office time deposits will fetch 5.5-6.7 per cent. The interest rates will be applicable for the period April 1, 20-2022 to June 30, 2022.

Here is a look at the interest rates on various small savings schemes for the first quarter of FY2022-23.

Interest rates on post office deposit schemes:

Instrument Interest rate (%) from April 1, 2022 Compounding frequency
Savings deposit 4 Annually
1 year Time Deposit 5.5 Quarterly
2 year Time Deposit 5.5 Quarterly
3 year Time Deposit 5.5 Quarterly
5 year Time Deposit 6.7 Quarterly
5-year Recurring Deposit 5.8 Quarterly
5-year Senior Citizen Savings Scheme 7.4 Quarterly and Paid
5-year Monthly Income Account 6.6 Monthly and Paid
5-year National Savings Certificate 6.8 Annually
Public Provident Fund 7.1 Annually
Kisan Vikas Patra 6.9 (will mature in 124 months) Annually
Sukanya Samriddhi Yojana 7.6 Annually

Source: Finance ministry circular dated March 31, 2022

Relief for fixed income investors

The government maintaining status quo on small savings rates is good news for fixed income investors. This especially since FD rates are at decadal lows, and the Employees’ Provident Fund (EPF) interest rate for FY 2021-22 has been slashed to a 40-year low to 8.1 percent.

All eyes are on the Reserve Bank of India (RBI) which is set to announce the bi-monthly monetary policy review on April 8, 2022. People will be keenly watching to see what RBI will do with key policy rates now that there is geopolitical tension due to the Russia-Ukraine crisis. It has been more than 20 months since the last change in repo rate when it was reduced to 4% on May 22, 2020, which is the lowest rate since April 2001.

With RBI having kept rates unchanged for so long, banks that have cutting fixed deposit (FD) interest rates relentlessly for the past few years, have now slowly started increasing rates. Most major banks have hiked FD interest rates marginally.

FDs vs bank savings accounts vs small saving schemes

Effective January 15, 2022 SBI’s 1-2 year FD will earn an interest rate of 5.1 percent. Compared to this Post Office Term Deposits with 1-3 year tenures earn 5.5 percent.

Apart from fixed deposits, even the interest rates on savings accounts offered by some of the bigger banks is lower than the interest rate on the post office savings account.

Post office savings account is currently offering 4% per annum whereas SBI is offering 2.70% per annum interest rate on its savings account. Similarly, ICICI Bank is offering 3-3.5% per annum.

How interest rates are set for small savings schemes

The interest rates on small savings schemes are reviewed every quarter by the government. The formula to arrive at the interest rates for small savings scheme was given by the Shyamala Gopinath Committee. The committee had suggested that the interest rates of different schemes should be 25-100 bps higher than the yields of the government bonds of similar maturity.

In fact, in its January 2022 State of the Economy report, the RBI said, “The Government of India reviewed interest rates on small saving instruments (SSIs) on December 31, 2021 and left them unchanged for the seventh straight quarter. The current interest rates on SSIs are 42-168 bps higher than the formula-based rates for Q4:2021-22.10.”

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