This article was first published in Financial Express.
Since April 1, 2016, the rate of interest on small savings are notified by the government on a quarterly basis and are linked to the yields of the government securities (G-Sec) of similar maturities.
Falling interest rate scenario is not a welcome sign
For the fixed income investors, a falling interest rate scenario is not a welcome sign. The interest rate on small savings schemes has been cut across all the post office savings schemes except on the savings account. The post office investments such as Public Provident Fund (PPF), National Savings Certificates (NSC), Senior Citizens Savings Scheme (SCSS) and Sukanya Samriddhi, KVP, etc are popular investment option among lakh of investors looking for fixed income as they are backed with a government guarantee.
For the July to September quarter of the FY, the interest rate across all products have been cut by 0.1 percent per annum. Since April 1, 2016, the rate of interest on small savings are notified by the government on a quarterly basis and are linked to the yields of the government securities (G-Sec) of similar maturities.
The post office rates were last revised in the Jan-March quarter of 2019, while it remained unchanged in the April-June 2019 quarter, possibly because of the general elections in the country.
Once invested in NSC, KVP, SCSS, Time Deposits, RD, MIS, the interest rate remains the same till maturity. However, in PPF the rate of interest will vary each quarter.
Interest rates of Small Savings Schemes 2019
|Investment||July to September 2019|
|1 Year Time Deposit||6.9%|
|2 Year Time Deposit||6.9%|
|3 Year Time Deposit||6.9%|
|5 Year Time Deposit||7.7%|
|5 Year Recurring Deposit||7.2%|
|5 Year Senior Citizens Savings||8.6%|
|5 year Monthly Income Account||7.6%|
|5 Year National Savings Certificate||7.9%|
|Public Provident Fund Scheme||7.9%|
|Kisan Vikas Patra||7.6% (113 months)|
|Sukanya Samriddhi Account||8.4%|
Lending rates are still high despite RBI rate cut
The cut, however, looked imminent as the yield on the G-Sec has been falling over the last 12 months. The G-sec yield last year was at 7.94 percent and is at 6.9 percent as on June 27, 2019, a fall of almost 100 basis points. Incidentally, on September 11, 2018, it touched a high of 8.18 percent.
In this calendar year 2019, the Reserve Bank of India has already cut the repo rate by 75 basis points the lending rates in the economy are still considered to be high.
Unlike in the past, even the PSU banks and few private sector banks are allowed to let people invest in post office investments such as PPF, Senior Citizens Savings Scheme (SCSS) and Sukanya Samriddhi, etc.
Some prominent banks which have revised their fixed deposit rates in June are HDFC, ICICI and Axis Bank, while SBI had revised the rates in May 2019.