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    PPF, NSC and other post office schemes interest rates remain unchanged

    Synopsis

    For Q1 of FY 2020-21, the government had slashed rates of small savings schemes by 0.7-1.40%. If the government had cut rates for this quarter as well in the similar fashion, then PPF would have fetched returns below the 7 per cent mark - a 46-year low.

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    The interest rates on small savings schemes are reviewed every quarter by the government.
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    There is some good news for fixed income investors: the government has kept the interest rates on small savings schemes or post office schemes unchanged for the July-September quarter of FY 2020-21. This was announced via a Department of Posts circular dated July 1, 2020.

    According to the circular, in the second quarter of FY 2020-21, the Public Provident Fund (PPF) will continue to earn 7.10 per cent. The Senior Citizens Savings Scheme (SCSS) will continue to earn 7.40 per cent and post office time deposits will fetch 5.5-6.7 per cent. The interest rates will be applicable for the period starting July 1, 2020 to September 30, 2020.

    Here is a look at the interest rates on various small savings schemes for the second quarter of FY 2020-21:

    Interest rates of post office deposit schemes
    Instrument

    Interest rate (%) from July 1, 2020

    Compounding frequency

    Savings deposit

    4

    Annually

    1 year Time Deposit

    5.5

    Quarterly

    2 year Time Deposit

    5.5

    Quarterly

    3 year Time Deposit

    5.5

    Quarterly

    5 year Time Deposit

    6.7

    Quarterly

    5-year Recurring Deposit

    5.8

    Quarterly

    5-year Senior Citizen Savings Scheme

    7.4

    Quarterly and Paid

    5-year Monthly Income Account

    6.6

    Monthly and Paid

    5-year National Savings Certificate

    6.8

    Annually

    Public Provident Fund

    7.1

    Annually

    Kisan Vikas Patra

    6.9 (will mature in 124 months)

    Annually

    Sukanya Samriddhi Yojana

    7.6

    Annually

    Source: Department of Posts circular

    Good news for investors
    For the previous quarter, that is, April-June 2020, the government had slashed rates of small savings schemes by 70-140 bps (100 bps = 1 per cent). If the government had cut rates for the second quarter as well in the similar fashion, then an investor-favourite instrument like the PPF would have fetched returns below the 7 per cent mark - a 46-year low.

    It is not just low returns on small savings schemes that have been hurting fixed income investors for some time now. With the Reserve Bank of India (RBI) cutting key rates over the past year or so, banks, too have been reducing interest rates on fixed deposits. Due to this, certain FD tenures are now fetching returns lower than even savings accounts.

    Interest rates on savings accounts, too, have not been spared. A State Bank of India savings account now earns 2.7 per cent per annum (with effect from May 31, 2020). An ICICI Bank savings account with a balance of less than Rs 50 lakh earns 3 per cent per annum (with effect from June 4, 2020). A Kotak Mahindra Bank (a bank whose USP has been its high interest rates on savings accounts, at one point earning 6 per cent) savings account with balance up to Rs 1 lakh now earns 3.5 per cent a year. For balances above Rs 1 lakh, Kotak Mahindra Bank is offering 4 per cent per annum.
    With fixed income investors being in such dire straits, the government keeping interest rates unchanged on small savings schemes will offer some relief.

    Post the announcement, post office savings account is offering interest rate of 4 per cent per annum which is higher or equivalent than the interest rate offered by leading banks on their savings accounts.

    How interest rates are set for small savings schemes
    The interest rates on small savings schemes are reviewed every quarter by the government. The formula to arrive at the interest rates for small savings scheme was given by the Shyamala Gopinath Committee. The committee had suggested that the interest rates of different schemes should be 25-100 bps higher than the yields of government bonds of similar maturity.

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    5 Comments on this Story

    Anshu Prakash Satapathy40 days ago
    Bank deposits have gone down by â ¹74,727 cr as of June 19 and the sole reason is lower interest rate. Retired individuals live on it and it should be attractive enough to motivate the poor to work harder, save and thrive. Lower interest rate only whispers lack of confidence in growth
    HG 40 days ago
    They have already reduced it much.
    Abhay Sandwar41 days ago
    Wisdom has prevailed to maintain the same ratio .Otherwise ,There was one formulae ONLY CUT AND CUT in order to push loan .
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