Small Savings Scheme interest rate: Govt retains rates for December quarter, eyes big mop-up

By: |
October 1, 2020 7:30 AM

The government had sharply cut the small savings rates (in the range of 70-140 basis points) for the June quarter, in sync with the fall in bond yields and interest rates on bank deposits. The small savings rates are revised quarterly.

fixed depositFDs are not the only option available to risk averse investors, and they can also consider investing in other fixed income instruments. Representational image

The government has kept interest rates on various small savings schemes unchanged for a second straight quarter through December, economic affairs secretary Tarun Bajaj said on Wednesday.

The announcement comes despite falling interest rates on bank deposits, as the government aims to encourage investors to park more funds in such schemes, which can be tapped for funding a part of its widening fiscal deficit at a time when the Covid-19 pandemic has badly hit its revenue collections.

On Wednesday, the government retained its full-year market borrowing target of `12 lakh crore, while declaring the borrowing calendar for the second half of this fiscal. A robust small savings collection can proportionately reduce the Centre’s reliance on market borrowing to finance the fiscal gap.

The government had sharply cut the small savings rates (in the range of 70-140 basis points) for the June quarter, in sync with the fall in bond yields and interest rates on bank deposits. The small savings rates are revised quarterly.

While the Centre could always look at raising its reliance on the National Small Savings Fund (NSSF) window, in sync with the trend in recent years, to fund deficit, there was a fear that, given the current income loss, many people would tend to withdraw more from small savings fund, shrinking the net kitty. The NSSF was already budgeted to finance as much as 30.1% of the deficit in FY21, not far from the record 31.3% in the last fiscal. However, the government’s fiscal math went haywires due to the pandemic, leading it to scour for resources to keep up productive expenditure commitments.

The interest rates on Public Provident Fund (PPF), Kisan Vikas Patra (KVP) Scheme and the Sukanya Samriddhi Account Scheme have been retained at 7.1%, 6.9% and 7.6%, respectively, for the July-September period, according to a circular by India Post. Similarly, the interest rate on one-year, two-year, and three-year time deposits have also been maintained at 5.5%.

The interest rate on almost all small saving schemes has been generally declining since April 2012. Interests on the five-year term deposit, recurring deposit, senior citizens savings scheme have been kept at 6.7%, 5.8% and 7.4%, respectively.

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