Small savings interest rates: Cut looks imminent, future gloomy for depositors

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For the common man, small savings are a big solace in an era of falling interest rates. But with the first quarter about to draw to a close, the apprehension of interest rates of small savings instruments is tormenting the common man once again.,

On March 31, the Union government had announced the reduction of interest rates on all small savings schemes by up to 90 basis points or 0.9 percentage point. However, within 12 hours, Finance Minister Nirmala Sitharaman announced a rollback, attributing the announcement to oversight.

However, with the state elections gone and a few decisions of the government in the past few weeks such as free vaccines for the states and free foodgrains for about 80 crore people until Diwali, a rate cut appears likely to trim the expenditure burden on the exchequer.

Interest rates on small savings instruments are revised every quarter.

Rates are low

Since 2012-13, the interest rate on a number of small savings instruments such as Public Provident Fund (PPF), Senior Citizen Savings Scheme (SCSS), 5-year FD, Monthly income scheme (MIS), National Savings Certificate (NSC) and Sukanya Samriddhi Yojona (SSY) suffered a cut of about 300 basis points of 3 percentage points.

In 3-year FDs, the average interest rates have been slashed from 8.4% to 5.5% in 2012. The drop in recurring deposit scheme was from 8.4% to 5.8%.

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In 2011, the interest rate of Kisan Vikas Patra (KVP) was 8.4%. In 2021 it stands at 6.9%, recording a dip of 150 basis points.

The interest rate in PPF, one of the most popular and recommended instruments tumbled from 8.8% to 7.1% in 2021.

For SCSS, the current interest rate is 7.4%, while in 2011 it was 9%. A total of 160 basis points was the dip in SCSS, which is the mainstay of many senior citizens in the country.

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The 5-year NSC and 5-year fixed deposits, too, suffered rate cuts. The interest rates on these two instruments stand at 6.8% and 6.7% respectively. In 2011 the interest rates of the NSC stood at 8.4%. The 5-year NSC was launched in 2012 with an interest rate of 7.5%.

The SSY was launched in January 2015 bearing 9.1% interest. It now stands at 7.6%. The interest rate of MIS was cut by 190 basis points to 6.6%. It was 8.5% in 2012.

People are worried

“We apprehend that another round of rate cut might take place. We have already written to the prime minister, Union finance minister and chief minister on the issue urging them not to trim the rates further. Hope they will realise the pains of the common people,” said Nirmal Das, general secretary of West Bengal small savings agents’ association. 

 “The small savings instruments offer great relief to the common man. It appears unlikely that the government would reduce rates during the pandemic when people are under financial stress. This quarter might not witness a rate cut,” said Avik Roy, senior deputy general with Bharat Chamber of Commerce.