For October-December quarter, the government has not changed interest rates on small savings schemes such as Public Provident Fund, National Savings Certificate, Sukanya Samridhi Yojna, Senior Citizens Savings Scheme and Post Office Deposits. Hence, PPF and NSC will continue to give interest at 7.9 per cent annual rate for October-December quarter. The government changes interest rates in small savings at every quarter.
Small savings schemes are considered as safe bet for orthodox investors who are wary of investing in equities due to market risk. They continue to invest in small savings schemes for long period of time and for a guaranteed but low returns. Equities or equity related savings or investment schemes continue to give higher return but with higher risk.
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The rate of return on Sukanya Samriddhi Yojna and Senior Citizen Savings Scheme are higher than other small savings schemes. The girl child savings scheme SSY will continue to give return at 8.4 per cent rate. The five-year Senior Citizens Savings Scheme will continue to offer an interest rate of 8.6 per cent.
"On the basis of the decision of the government, interest rates for small savings schemes are notified on quarterly basis since April 1, 2016. Accordingly, the rates of interest of various small savings schemes for the third quarter of the financial year 2019-20 starting from October 1, 2019 and ending on December 31, 2019 shall remain unchanged from those notified for the second quarter (July 31 - September 30, 2019) of financial year 2019-20," the finance ministry said in a statement.
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Post office term deposits of 1-3 years continue to offer interest rate of 6.9 per cent while the five-year at 7.7 per cent. Post office 5-year recurring deposits will fetch 7.2 per cent. All are unchanged.
Interest rate for Post Office Monthly Income Scheme (MIS), is paid every month. The five-year scheme will continue to give return at 7.6 per cent. As the rates have not been changed, Kisan Vikas Patra (KVP), another small savings scheme, will continue to give return at 7.6 per cent with 113 months maturity.
The National Savings Recurring Deposit Account of Post Office Savings Scheme for five year maturity period will continue to give return at 7.2 per cent rate (quarterly compounded). “On maturity Rs 10 account fetches Rs 725.05. It can be continued for another 5 years on year to year basis,” India Post says on its website. Minimum amount for opening of account and balance to be maintained is Rs 10 per month or any amount in multiples of Rs 5. There is no maximum limit.
It was expected that the government will reduce these rates, which are pegged at 25-100 bps above the government bond yields of the same maturity. As the rates have remained unchanged most of the investors, who are mostly senior citizens and orthodox investors, stand to benefit from it. Banks have now started to link their fixed deposit rates to external benchmark, RBI’s repurchase or repo rate. Earlier, bank’s fixed deposit rate was linked to Marginal Cost of Funds Based Lending Rate (MCLR).
