Will The Govt Hike PPF Interest Rate In 2024? Check How Rates On Small Saving Schemes Are Calculated

Thinking if you will get more interest from your investment in small saving schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC), Sukanya Samriddhi Yojana (SSY), and others from next year?

The interest rate of PPF has remained at 7.1% since April 2020. Meanwhile, the interest rates of other small savings schemes like Senior Citizen Savings Schemes (SCSS), NSC, and SSY have jumped in the last few quarters. Interest rates of small savings schemes are due for revision at the end of this month.

According to media reports, the government is expected to change the interest rates of the Public Provident Fund (PPF), National Savings Certificate (NSC), and other small savings schemes for the mentioned quarter.

How interest rates of small saving schemes - PPF, Senior Citizen Savings Scheme, and Sukanya Samriddhi Account are calculated?

According to The Economic Times report, the interest rates of small savings schemes are linked to yields of 10-year Government Securities in the secondary market. There are set formulae for mark-ups over the last three months' average yield yield of relevant G-Secs of comparable maturity. The union government reviews the interest rates of small savings schemes each quarter based on the G-Secs yields of the last three months.

Thus, for the upcoming January- March 2024 period, the reference period of September-November 2023 suggests a jump in yields on government bonds.

According to the formula notified by the Finance Ministry in 2016, in a given quarter PPF interest rate has a spread of 25 basis points (bps) over the benchmarked yield of the last three months. The benchmark 10-year bond yield has averaged 7.28% from September to October 2023, according to data from investing.com.

Going by the formula, the interest rate of PPF will be 25bps more than the average 10-year G-sec yield. So in line with this process, the PPF interest rate should ideally be around 7.53% for the January-March quarter.

In the last announcement, the government kept small savings interest rates unchanged for the October-December quarter barring a marginal increase in five-year recurring deposit (RD) rates.

The PPF has remained steady since April-June 2020, when it was slashed to 7.1% from 7.9%. Before that, it was cut in July-September 2019. It was last hiked in October-December 2018 to 8% from 7.6%.

Talking about SCSS, the interest rate was kept unchanged at 8.2% for the July-September quarter, following two consecutive quarters of upward revisions. In the April-June period, the interest rate was raised from 8% to 8.2%.
The Sukanya Samriddhi Yojana has a spread of 75 bps.

So, in line with the above-discussed formula, the interest rate of SSY should ideally be around 8.03% for the January-March quarter. The interest rate of the Sukanya Samriddhi Yojana is already 8% for the December quarter.

Similarly, the Senior Citizens Savings Scheme (SCSS) has the biggest spread of 100 bps. So, going by the formula, the interest rate should be around 8.28% for the January-March quarter.

Interest rates on small savings schemes for the December quarter:

PPF - 7.1%
SCSS - 8.2%
Sukanya Yojana - 8.0%
NSC - 7.7%
Kisan Vikas Patra - 7.5%
1-Year Deposit - 6.9%
2-Year Deposit - 7.0%
3-Year Deposit - 7.0%
5-Year Deposit - 7.5%
5-Year RD - 6.7%