Hike in interest rates on small savings schemes.
Bringing cheer to investors, the government raised interest rates across all small savings schemes except the post office savings deposit and the Public Provident Fund (PPF) for the April-June 2023 quarter. The rates were announced this evening.
Most significantly, the interest rate on the National Savings Certificate (NSC) has been hiked from 7 percent for the January – March 2023 quarter to 7.7 percent for the April – June 2023 quarter.
Interest rates on all post office term deposits (with maturities of 1,2,3 and 5 years) have been raised by 10 to 50 basis points. One basis point is one-hundredth of a percentage point. The sharpest hike has been introduced for the 5-year post office term deposit – from 7 percent for the January – March 2023 quarter to 7.5 percent for the April-June 2023 quarter. The Sukanya Samriddhi Account Scheme too will enjoy a higher rate of interest – up from the existing 7.6 percent to 8 percent .
The interest rate on the Senior Citizen Savings Scheme has been raised by 20 basis points from 8 percent for the January-March 2023 quarter to 8.2 percent for the April-June 2023 quarter.
To benefit senior citizens, the Finance Minister raised the maximum deposit limit for this scheme from Rs. 15 lakh to Rs. 30 lakh in Budget 2023. For the Monthly Income Account Scheme, the interest rate has been hiked by 30 basis points from 7.1 percent to 7.4 percent . The maximum deposit limit for this scheme too was raised in the budget - from Rs 4.5 lakh to Rs 9 lakh for single accounts and from Rs 9 lakh to Rs 15 lakh for joint accounts.
However, the interest rate on PPF has been left unchanged at 7.1 percent and that on the post office savings deposit at 4 percent.
Commenting on the latest small savings schemes quarterly rate review, Aditi Nayar, Chief Economist and Head - Research and Outreach ICRA said, “As expected, small savings interest rates have been hiked by 10-70 basis points across various instruments. This should help to garner steady deposits in the coming quarter, in light of the expected rate hike from the RBI Monetary Policy Committee in April 2023, which would subsequently get transmitted to bank deposit rates.”
The interest rates on these schemes are reviewed every quarter. In the last quarterly review on December 30, 2022, the interest rates on many of these schemes were hiked by as much as 20 – 110 basis points (applicable for the January-March 2023 quarter). This had been preceded by a modest hike across a few schemes in the September 29, 2022 review.
The small savings schemes are popular as a low-risk investment option given their government backing. The money garnered under these schemes is used by the central government to finance its fiscal deficit.
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