Small Savings may see rate cut for April-June quarter, first in 5 yrs

After the policy interest rate cut by the Monetary Policy Committee, small savings schemes may also see a lowering of interest rates, a senior Finance Ministry official said. The last rate reduction in these government-backed schemes took place in the April-June quarter of FY21.

Interest rates on 12 categories of small savings are reviewed during the final week of every quarter by the Finance Ministry and made effective from the first day of the following quarter. The next review is set for March for the April-June quarter of Fiscal Year 2025-26.

“Interest rates on bank fixed deposits are likely to decline following the policy interest rate cut. At the same time, the current rates on small saving schemes are valid until March 31. So, it is a good time to invest in these schemes,” an official said, hinting a possible rate cut. Also, a special scheme for women, offering a 7.5 per cent annual interest rate is set to end on March 31. It is believed that if there is no revision in small savings interest rates, then people will move from banks to post offices.

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The small savings schemes currently available include the Post Office Savings Account, National Savings Time Deposits (1, 2, 3 & 5 years), National Savings Recurring Deposits, National Savings Monthly Income Scheme Account, Senior Citizens’ Savings Scheme, National Savings Certificate, Public Provident Fund, Kisan Vikas Patra and Sukanya Samriddhi Account. These schemes provide guaranteed returns ranging from 4 to 8.2 per cent per annum and allow investors to claim income tax exemption of up to ₹1.5 lakh under section 80C of the Income Tax Act under the Old Income Tax regime.

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Sovereign Gold Bonds

Meanwhile, the official said that there is no fresh tranche of Sovereign Gold Bonds (SGBs) either in the remaining part of the current fiscal or in the next fiscal starting April 1. The last tranche of SGB (FY2023-24 Series IV) was issued on February 21. The aggregate sum raised during 2023-24 amounted to ₹27,031 crore (44.34 tonnes). Since the inception of the SGB scheme in November 2015, a total of ₹ 72,274 crore (146.96 tonnes) has been raised through 67 tranches. The government has maintained that SGBs are among the costliest instruments for managing the fiscal deficit.