The Finance Ministry has hiked the interest rates of various small savings schemes for the third quarter (October 1 to December 31) by up to 40 bps or 0.4 per cent. These schemes include the Public Provident Fund (PPF), Sukanya Samridhi Yojana (SSY), National Savings Certificate (NSC) and post office time deposit. As per experts, hike is done keeping in mind the rise in deposit rates in the banks. The rate of interest for small savings account are notified on a quarterly basis. The move is a big relief for fixed income investors as the rate where not changed for the last two quarters.

Apart from the hike, the government has also cut down the interest rates on the above mentioned schemes in January- March quarter. The interest rates of various small saving schemes have been hiked by between 30 basis points and 40 basis points. (One percentage point is equivalent to 100 basis points.), stated the circular issued by the Finance Ministry on September 19. The circular stated that the interest rate for the 5 year term deposit, recurring deposit, Senior Citizens Savings Scheme has been raised to 7.8, 7.3 and 8.7 per cent, respectively. For the senior citizen scheme, the interest is paid on a quarterly basis.

However, there has been no change in the interest of the savings deposit and is still 4 per cent annually. After the recent raise, the interest on Public Provident Fund (PPF) and National Savings Certificate (NSC) will move to 8 per cent from existing 7.6. Likewise Kisan Vikas Patra (KVP) will give 7.7 per cent interest and mature in 112 months as against 118 months in the previous quarter.

The Sukanya Samridhi Yojana will now earn interest rate of 8.5 per cent, compared to the current 8.1 per cent. Even the term deposits of one-three years will gain 0.3 per cent higher interest rate.

“Rates of small savings schemes would be linked to government bond yields. The move is expected to see banks lowering their deposit rates in line with the small savings rate offered by the government,” news agency PTI quoted the Finance Ministry as saying while announcing the quarterly settings.