PPF, NSC and other small savings schemes interest rates kept unchanged for March quarter

The interest rates on small savings schemes have been kept unchanged by the government for the fourth quarter of FY 2019-20, i.e., January-March. The government has maintained status quo despite the Reserve Bank of India urging it to reduce interest rates on small savings schemes.

For the quarter ending March 2020, small savings schemes such as the Public Provident Fund (PPF), National Savings Certificate (NSC) will continue to fetch same interest rate. PPF will continue to earn 7.9 per cent during the quarter January to March 2020. Senior Citizens Savings Scheme (SCSS) will earn 8.6 per cent. Post office time deposits will continue to earn in the range of 6.9-7.7 per cent.

The Department of Economic Affairs made an announcement in this regard on December 31, 2019.


Small savings scheme interest rates

Instrument	Rate of Interest w.r.t 01.01.2020	Compounding Frequency
Savings Deposit	4	Annually
1 year Time Deposit	6.9	Quarterly
2 year Time Deposit	6.9	Quarterly
3 year Time Deposit	6.9	Quarterly
5 year Time Deposit	7.7	Quarterly
5 year Recurring Deposit	7.2	Quarterly
5 year Senior Citizen Savings Scheme	8.6	Quarterly and Paid
5 year Monthly Income Account	7.6	Monthly and Paid
5 year National Savings Certificate	7.9	Annually
Public Provident Fund Scheme	7.9	Annually
Kisan Vikas Patra	7.6 (will mature in 113 months)	Annually
Sukanya Samriddhi Account Scheme	8.4	Annually

Source: Department of Economic Affairs

The interest rates on small savings schemes are reviewed every quarter by the government. The formula to arrive at the interest rates of the 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.

What this means for the investor
Interest earned on fixed deposits (FDs) has been falling over the past few months. This is because with the RBI cutting the repo rate by a total of 135 basis points (bps) in 2019, banks, too, have been reducing interest rates on FDs. Pensioners have been hit hard by the trend of falling interest rates in India.

A study conducted by the country's largest lender, the State Bank of India, has estimated that pensioners have lost an average Rs 5,845 annually due to the falling interest rate regime. SBI interest rate on one-year FD as on November is 6.25 percent and for senior citizens the rate is 6.75 percent. In August, these FDs were earning 6.8 percent and 7.3 percent for senior citizens. This is a 55 bps cut in just a matter of three months.

The government keeping interest rates on small savings schemes will come as a relief for such fixed income investors.