The government might lower interest rates on some small savings schemes for July-September quarter - a move that will affect many depositors. This change might be announced either this week or early next week.
The government is mulling a reduction in the interest rates on PPF and some other small savings schemes for the July-September quarter, according to a report by The Business Standard. The cut could be as much as 30 to 50 basis points, it further stated. However, even with the reduction, the post-tax return of PPF (tax-free) is expected to be greater than what the taxable bank deposits offer, The Economic Times reported.
At present, the rate of interest on PPF and 5-year National Savings Certificate is set at 8%, while the 5-year Monthly Income Scheme fetches 7.7%. Investments in Senior Citizens Savings Scheme and Sukanya Samriddhi account could continue to earn higher rates compared with other small savings schemes, considering their social objectives, according to financial daily Mint. The interest rate for Senior Citizens Savings Scheme is currently fixed at 8.7%, while that of Sukanya Samriddhi is 8.5%.
The government has been attempting to align the interest rates on small savings schemes with that of the market rates. During the last one year, the rates have been tweaked two times - with the October-December quarter witnessing a 30-40 bps increase. The finance ministry’s economic affairs department might announce the rate changes either later this week or early next week.
While the Reserve Bank of India has cut the repo rate three times this year, the interest rates on small savings schemes were kept unchanged in the April-June quarter. The January-March quarter rates remained unchanged for all schemes, other than for time deposits. Interest rates on small savings schemes are notified by the government on a quarterly basis.