PPF, NSC, SSY and other small savings schemes' interest rates remain unchanged

Post office savings schemes or small savings schemes interest rates have been kept unchanged for the third quarter of the current financial year, i.e., 2019-20 despite a general downtrend in interest rates in the economy and belying expectations of a cut.

This was announced by the Ministry of Finance in a circular dated September 30, 2019. All small savings schemes including PPF (Public Provident Fund), NSC (National Savings Certificate), SSY (Sukanya Samriddhi Yojana) and others will continue to fetch same interest rate between October and December quarter of FY 2019-20 as they were earning during the July to September quarter.

In the previous quarter, government had reduced the interest rate on these schemes by 10 basis points (1 basis point = 0.01 per cent) for the all the schemes except for savings account interest rate.

Interest rate on Small Savings Scheme from October and December Quarter

This decision is good news for small depositors and senior citizens as banks have been reducing their fixed deposits (FDs) interest rate since the start of the financial year as the Reserve Bank of India (RBI) has been reducing its key policy rates.

PPF will continue to earn 7.90 per cent in the quarter October to December 2019. Senior Citizens Savings Scheme (SCSS) will earn 8.60 per cent. Post office time deposits will continue to earn in the range of 6.90 and 7.70 per cent. Remember 5 year post office time deposit is eligible for tax benefit under section 80C of the Income Tax Act.

There was speculation that government may reduce interest rates on these deposits. This is because the interest rates on these schemes have been benchmarked to the yields of government bonds of the same maturity. The interest rate is calculated by adding a mark-up to the average of the government yield of the previous quarter.

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.

One of the reasons behind the government's decision to keep the rates unchanged may be the increase in the budget's fiscal deficit following slashing of the corporate tax rates.