Small Saving Schemes Unlikely To See Sharp Rate Cuts: Here’s Why

The small saving schemes which will see interest rate revision on September 30 as per analyst expectations are unlikely to see huge changes on interest rate front. The interest rate on these small saving schemes is linked to yield on government bonds which for the current quarter stood 20 basis points below the earlier quarter. But the interest rate is unlikely to be in tandem with this decline in bond yield on government bonds as consumers are in general already struggling due to high fuel inflation.

In the earlier quarter, the government revised rates on these schemes lower by 0.1%. PPF, 5- year maturity NSC yielded a lower return of 7.8%. KVP also fetched lower interest rate of 7.5%. Sukanya Samriddhi saving scheme and five-year senior citizens savings scheme also bore 8.3%

So, the 10 basis points reduction in return will mean PPF interest rate will drop to 7.7% which is still better than other investment due to its tax free nature. Also, as the consumer inflation is low, the interest shall be able to fetch good real return good enough to tide over inflation.
Also, senior citizens saving scheme are expected to see a fall by 1% to 8.2% which shall be a decline from a high return of 9.5%.

In view of this, you can also park your money in better yielding instruments such as the VPF which provides return at par with EPF account.

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