The government on Thursday raised by up to 40 basis points (bps) interest rates on various small savings schemes for the three months through December, compared with the September quarter, mirroring rising interest rates in bank deposits.
The interest rate on Public Provident Fund (PPF), Kisan Vikas Patra (KVP) Scheme and the Sukanya Samriddhi Account Scheme have been raised by 40 basis points each for the December quarter, according to a finance ministry notification. Similarly, the interest rate on one-year, two-year, and three-year time deposits have also been hiked by 30 bps to 6.9%, 7% and 7.2%, respectively.
While the hike is in sync with rising deposit rates in the banks, it will also raise the Centre’s interest outgo. Small savings interest rates are revised quarterly.
Finance minister Arun Jaitley said in a tweet: “To support small savers, the interest rates for the small savings scheme have been increased by 0.3-0.4% for the third quarter of this year.”
“To promote welfare of the girl child and improve financial security of the elderly, government, from October 1, has increased returns on the Sukanya Samridhi Yojana to 8.5% (from 8.1%), and on the Senior Citizens Savings Scheme to 8.7% (from 8.3%).”
The interest rate on almost all small saving schemes have been generally declining since April 2012. The interest rate on PPF, returns from which are exempt from income tax, has been raised to 8% for the third quarter from 7.6%. The interest rate on PPF deposits was as much as 8.8% in April 2012. Kisan Vikas Patra will yield an interest rate of 7.7%, against 7.3%. With the 40 basis point hike in the interest rate, deposits in the form of KVP will mature in 112 months, against 118 earlier.
Interest on five-year term deposit, recurring deposit, senior citizens savings scheme has been raised to 7.8%, 7.3% and 8.7%, respectively. The interest on the senior citizens’ scheme is paid quarterly. However, the interest on savings deposits has been kept unchanged at an annual 4%.