"In line with the revision of interest rates of small savings schemes, interest rates for the National Small Savings Fund (NSSF) loan to Centre and states for FY 2016-17 has been revised and fixed at 8.8 percent," a finance Ministry statement here said.
"This interest rate was felt to be burdensome on states' economies. In the context of easing the transmission of the lower interest rates in the economy, the government has taken a comprehensive view on the social goals of certain National Small Savings Schemes (NSSS)," it added.
The NSSF invests its net collection as loans to central, state and union territory governments.
In a bid to align small savings to the market, the government, last month, cut interest rates on all such schemes, including on Public Provident Fund (PPF), Kisan Vikas Patra (KVP) and senior citizen deposits.
Interest rate on PPF has been cut to 8.1 percent for the period April 1 to June 30, from 8.7 percent.
The interest rate on KVP has been reduced to 7.8 percent from 8.7 percent, while senior citizen savings schemes of five years would earn 8.6 percent interest, compared to 9.3 percent.