Interest Rates on Small Savings Schemes

• 30 Sep 2022

Why in News?

Recently, the Government of India has hiked interest rates on some of the Small Savings Schemes (2-year and 3-year Time Deposits, Senior Citizens Savings Scheme and Kisan Vikas Patra) for October-December 2022.

What are Small Savings Schemes?

• About:
  • Small Savings Schemes are a set of savings instruments managed by the central government with an aim to encourage citizens to save regularly irrespective of their age.
    • They are popular as they not only provide returns that are generally higher than bank fixed deposits but also come with a sovereign guarantee and tax benefits.
  • All deposits received under various small savings schemes are pooled in the National Small Savings Fund. The money in the fund is used by the central government to finance its fiscal deficit.
• Classification:
  • Post office deposits:
    • Savings deposit, Recurring deposit and Time deposits with 1, 2, 3 and 5 year maturities and the Monthly Income Account.
  • Savings Certificates:
    • National Savings Certificate:
      • The interest that is earned is reinvested into the scheme every year automatically.
    • Kisan Vikas Patra:
      • Open to everyone, doubles the one-time investment at the end of 124 months signifying a return of 6.9% compounded annually.
  • Social Security Schemes:
    • Public Provident Fund:
      • Public Provident Fund (PPF) is a retirement savings scheme offered by the Government of India with the aim of providing a secure post-retirement life to everyone.
    • Sukanya Samriddhi Account:
      • It was launched in 2015 under the Beti Bachao Beti Padhao campaign exclusively for a girl child.
      • The account can be opened in the name of a girl child below the age of 10 years.
      • The scheme guarantees a return of 7.6% per annum and is eligible for tax benefit under Section 80C of the Income Tax Act.
    • Senior Citizens Savings Scheme:
      • Can be opened by anyone who is over 60 years of age.
• Determination of Rates:
  • Interest rates on small savings schemes are reset on a quarterly basis, in line with the movement in benchmark government bonds of similar maturity. The rates are reviewed periodically by the Ministry of Finance.
  • The Shyamala Gopinath panel (2010) constituted on the Small Saving Scheme had suggested a market-linked interest rate system for small savings schemes.

Source: IE