The finance ministry issued a circular on March 31, 2023, announcing that the interest rates of small savings schemes have been increased by up to 70 bps for the April-June 2023 quarter. Schemes that have experienced a hike in their interest rates include the National Savings Certificate, Senior Citizen Savings Scheme, Monthly Income Savings Scheme, Kisan Vikas Patra, Sukanya Samriddhi Account Scheme, and all post office time deposits. The interest rate of Public Provident Fund (PPF) remains unchanged at 7.1%. (Note: One percentage point is equivalent to 100 basis points.)
How interest rates are set for small savings schemes
Every quarter, the government conducts a review of the interest rates for small savings schemes. The formula used to determine these rates was proposed by the Shyamala Gopinath Committee, which recommended that the interest rates for various schemes should be 25-100 bps higher than the yields of government bonds with similar maturities.
Last time interest rates were hiked
For the January-March 2023 quarter, the government had increased the interest rates of certain small savings schemes by 20-110 bps. These included the Senior Citizen Savings Scheme, Monthly Income Savings Scheme, National Savings Certificate, Kisan Vikas Patra, and all post office time deposits. However, there were no changes made to the interest rates of the Public Provident Fund and Sukanya Samriddhi Yojana.
Given the recent increase in government bond yields, the latest interest rate hike for the April-June quarter was not surprising. The interest rates of small savings schemes are tied to government bond yields with similar maturities and are adjusted every quarter. Therefore, with the significant rise in bond yields, it was necessary to increase the interest rates of small savings schemes.
