The new interest period is to start from January 1 and there is no change in the interest rate on small savings schemes for the third time in a row as decided by the Finance Ministry.

 

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Small savings schemes include many popular instruments such as National Savings Certificates (NSC) and Public Provident Fund (PPF). These schemes apart from giving a higher interest rate than the bank’s fixed deposits also help in saving income tax. Banks have lowered interest rate on all types of term deposits and on savings account in the last few months. This has led to the Government being pressured to cut rates on small savings, still, the government has refused to relent this time. According to the banks, small savings schemes are attractive because of the higher interest rates and tax benefits, and they damage the mobilization of bank deposits. They also affect the transmission of policy rate cuts.

The small savings schemes comprise 12 instruments including the Public Provident Fund (PPF), National Savings Certificate (NSC), Kisan Vikas Patra (KVP), and Sukanya Samridihi Scheme. The s the interest rate is reset by the government at the beginning of every quarter. Theoretically speaking, as advised by the Shyamala Gopinath Committee, since 2016 the interest rate resetting has been done based on yields of government securities of the corresponding maturity with some spread on the scheme for senior citizens. But, practically, the interest rate changes are made after considering many other factors, including political ones.

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