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Small Savings Post Office Schemes: Invest Before Interest Rates Are Slashed


The Reserve Bank of India (RBI) in the fourth bi-monthly monetary policy reduced the repo rate by 50 basis points from 7.25 per cent to 6.75 per cent. This was the fourth time this year that the country's central bank slashed interest rates.


The RBI is also insisting on banks to pass on the benefits to borrowers. Most of the banks have already reduced their base rates along with lending rates, bank deposit interest rates have also come down.

As of now small savings schemes offer an interest rate of 8.7 per cent, while the maximum that State Bank of India offers on term fixed deposits is 8 per cent.

Small Savings Post Office Schemes: Invest Before Interest Rates Are Slashed

Recently, the Finance Minister said the interest rate on small savings like PPF and post office deposits will be reviewed. However, the interest of small savers will be considered.

Interest rates on small savings has to come down, because investors move money from bank deposits to small savings deposits, because of the higher interest rates in the latter.

This has been hitting banks hard and they have time and again voiced their opinion on high interest rates in small savings post office schemes.


This means it is almost certain that interest rates on post office small savings schemes maybe aligned to bank deposit interest rates. Reduced interest rates will have a negative impact on the investments of senior citizens.

Small savings schemes are very popular among senior citizens and risk averse individuals due to its safety and tax benefit. Small savings schemes hold a major chunk in the investment portfolio for many.

Investment Under Saving SchemeRate of InterestTax Benefit Under IT Act
Post Office Monthly Income Scheme8.40 Per centNA
Kisan Vikas Patra (KVP)8.70 Per centNA
Public Provident Fund8.70 Per centApplicable under 80C
5-Year NSC (VIII Issue)8.50 Per centApplicable under 80C
10-Year NSC (IX Issue)8.80 Per centApplicable under 80C
Post Office Time Deposits8.40- 8.50 Per centApplicable under 80C
5-Year Recurring Deposit8.40 Per centNA
Savings Deposits4.00 Per centNA
Sukanya Samriddhi Yojana9.20 Per centApplicable under 80C
Senior Citizens Savings Scheme9.30 Per centApplicable under 80C

Individuals who are having a major chunk in small savings scheme can consider re-looking at it. Young investors can reshuffle their investments considering their risk appetite, age, financial goals, also tax implications.
The best bet in this category would be the Kissan Vikas Patra because it has a tenure of 8 years and 7 months, and NSC has tenure of 5 years and 10 Years and the interest cannot be changed every year.
In the case of others, like PPF, Sukanya Samriddhi Yojana, Senior Citizens Savings Scheme and Post Office Monthly Income Scheme the interest rates can be altered by the government.

Therefore, if you are investing now, it makes sense to lock money in KVP and NSC before interest rates fall.

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