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- By Aditya Pratap Singh
- Sun, 09 Feb 2025 04:46 PM (IST)
- Source:JND
Interest Rate On Small Saving Schemes: After nearly five years, the Reserve Bank of India (RBI) reduced the repo rate by 25 basis points, bringing it down from 6.50% to 6.25% on February 7. This decision is expected to impact small savings schemes, with reports suggesting the government may soon reduce interest rates on these schemes. However, the Mahila Samman Savings Scheme remains unaffected for now.
Interest Rates May be Reduced On Small Savings Schemes
If this plan comes to fruition, it would be the first reduction in five years in the interest rates offered by small savings schemes. Official hints from The Indian Express were made that such a decision would likely cause interest rates to see another round of cuts, leading it to fixed deposit (FDs) accounts with banks, including the likes of PPF, SSY, and SCSS.
The interest rates of small savings schemes are reviewed every quarter, and the rates for the April-June 2025 quarter are to be announced by the end of March. Officials believe that these rates aligned with the fall in the rates of bank deposits will not create a shift of deposits from banks to post offices.
Current Interest Rates on Small Savings Schemes
As of now, small savings schemes offer some of the most attractive returns for investors. Below is a breakdown of the interest rates:
Scheme | Interest Rate | Compounding Frequency |
1-Year Time Deposit (Post Office FD) | 6.9% | Quarterly |
2-Year Time Deposit (Post Office FD) | 7.0% | Quarterly |
3-Year Time Deposit (Post Office FD) | 7.1% | Quarterly |
5-Year Time Deposit (Post Office FD) | 7.5% | Quarterly |
5-Year Recurring Deposit (Post Office RD) | 6.7% | Quarterly |
Senior Citizen Savings Scheme (SCSS) | 8.2% | Quarterly (Paid Out) |
Monthly Income Account (MIA) | 7.4% | Monthly (Paid Out) |
National Savings Certificate (NSC) | 7.7% | Annually |
Public Provident Fund (PPF) | 7.1% | Annually |
Kisan Vikas Patra (KVP) | 7.5% | Annually |
Sukanya Samriddhi Yojana (SSY) | 8.2% | Annually |
Mahila Samman Savings Certificate (MSSC) | 7.5% | Quarterly |
Focus on Mahila Samman Bachat Yojana
The interest on the Mahila Samman Savings Scheme remains at 7.5% and will continue till March 31, 2025. All deposits done before that date will attract the same rate for another two years. However, further extension of the scheme beyond March 2025 is not confirmed yet.
Impact on Bank FDs and Fiscal Deficit
The reduction in the repo rate is likely to decrease interest rates on bank fixed deposits. To avoid a mass shift of deposits to post offices that offer a higher return, the government may cut small savings rates downward.
A chunk of the Centre's fiscal deficit is indeed financed by the National Small Savings Fund. The NSSF target for FY25 was set at Rs. 4.11 lakh crore. Now, the government has reduced it to Rs 3.43 lakh crore for FY26.
Investors Should be vigilant
The upcoming interest rate announcements for the April-June quarter are something that investors should watch out for. As of now, small savings schemes are quite competitive, but if the rates come down, then their appeal in the following months will be impacted.