News

Published: Apr 1, 2023
Updated: Apr 1, 2023

Government Increases Interest Rates on Small Savings Schemes for April-June 2023 Quarter

The government has announced a hike in interest rates for most small savings schemes for the April-June 2023 quarter. This move aims to attract investors and help garner steady deposits in light of the expected rate hike from the Monetary Policy Committee (MPC) in April 2023, which is expected to subsequently get transmitted to bank deposit rates. The interest rate for National Savings Certificate (NSC) has been raised steeply by 70 basis points (bps), making it an attractive option for investors with a return of 7.7%. The Senior Citizens Savings Scheme rate has also been hiked to 8.2%, up from 8%.

Interest Rates Increased for Ten Small Savings Schemes

The government has raised interest rates on ten small savings schemes for the April-June 2023 period. Deposit limits have been increased for Senior Citizens' Savings Scheme and National Savings (Monthly Income Account) Scheme to Rs 30 lakh and Rs 9 lakh, respectively. Joint accounts under the NSS will have a limit of Rs 15 lakh instead of the current Rs 9 lakh. The Mahila Samman Savings Certificate, announced in the FY24 budget, will have a deposit limit of Rs 2 lakh and offer a fixed interest of 7.5% for two years with a partial withdrawal option.

PPF Rate Unchanged, but Other Deposits Rates Hiked

The government kept the Public Provident Fund (PPF) rate unchanged at 7.1%. However, interest rates for one, two, three, and five-year deposits have been increased. The one-year deposit rate has been raised by 20 bps to 6.8%, the two-year deposit rate is now 6.9%, the three-year deposit rate is now 7%, a hike of 10 bps, and the five-year deposit and recurring deposit rates have been raised to 7.5% and 6.2%, respectively.

Sukanya Samriddhi Scheme and Kisan Vikas Patra Rates Increased

The effective interest rate on the Sukanya Samriddhi Scheme now stands at 8% after a raise of 40 bps, and interest rates on Kisan Vikas Patra have been raised to 7.5% from the earlier 7.2%. The government has also reduced the maturity period for this instrument to 115 months from the earlier 120 months. The interest rate on the Monthly Income Account Scheme has been raised to 7.4%.

A Move to Bring Rates at Par with Bank Fixed Deposits

According to Deepesh Raghaw, founder of Personal Finance Plan, a Securities and Exchange Board of India-registered investment advisor, the increase in small savings rates is to bring the rates at par with bank fixed deposits. Every investor compares the return of small savings against the fixed deposits offered by banks, and with the exemption from taxation, PPF has been kept unchanged.

Move aims to attract investors and help garner steady deposits

The government's move to increase interest rates on most small savings schemes for the April-June 2023 quarter aims to attract investors and help garner steady deposits. This comes in light of the expected rate hike from the MPC in April 2023, which is expected to subsequently get transmitted to bank deposit rates. While PPF rates have been kept unchanged, other deposits rates have been hiked to bring them at par with bank fixed deposits.