After cutting the rates on small savings schemes for Jan – March 2018, the government has refrained from doing so in its quarterly revision for April – June 2018. The rates on different small savings schemes are as mentioned below:
|Instrument||Interest Rate %
(April – June 2018)
|Post Office Deposits|
|1-year time deposit||6.6||Quarterly|
|2-year time deposit||6.7||Quarterly|
|3-year time deposit||6.9||Quarterly|
|5-year time deposit||7.4||Quarterly|
|5-year recurring deposit||6.9||Quarterly|
|Other Savings Instruments|
|5 year Senior Citizens’ Savings Scheme||8.5||Quarterly and paid|
|5 year Post Office Monthly Income Scheme||7.3||Monthly and paid|
|5 year National Savings Certificate||7.6||Annually|
|Public Provident Fund||7.6||Annually|
|Kisan Vikas Patra||7.3||Annually|
|Sukanya Samriddhi Scheme||8.1||Annually|
Rate freeze actually a rate cut?
Overall interest rates in the economy have been rising since August 2017 when the 10 year Government of India Bond Yield bottomed out at 6.4%. The current 10-year bond yield sits at 7.4%, a full percentage point higher. This trend has been led by rising government borrowing and rising rates abroad.
These rate increases recently prompted the Government to announce that it will cut down on its borrowing programme and fund more of the budget from the National Small Savings Fund (NSSF). Interestingly enough this fund is precisely where money from all the small savings listed goes.
In other words, small savings have become a cheaper source of funding than the bond market (many of these schemes have rates below 7.4%). Bank FD rates are also rising with SBI announcing a hike in key deposit rates on 28th March. In other words, what looks like a rate freeze, may be a de facto rate cut on these schemes as they start to lag behind the overall interest rate in the economy.