The Centre did not revise the interest rates of small savings schemes for the first quarter (April-June) of FY25. Post office schemes comprise the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), Senior Citizen Saving Scheme (SCSS), Term Deposits, Post Office Monthly Income Scheme (POMIS), and more.
In a memorandum issued on March 8, the Ministry of Finance said, “The rates of interest on various Small Savings Schemes for the first quarter of FY 2024-25 starting from 1st April, 2024 and ending on 30th June, 2024 shall remain unchanged from those notified for the fourth quarter (1st January, 2024 to 31st March, 2024) of FY 2023-24.”
The interest rates were last revised on December 31, 2023. Notably, the interest rate of Public Provident Fund (PPF) was unchanged at 7.1% even during the previous quarter.
This quarter it is highly anticipated that the government may tweak the interest rates giving a boost to the investors. The interest rates of the small savings schemes are evaluated and adjusted by the government quarterly.
Existing interest rates
Small savings schemes Interest rates for April-June 2024
Savings deposits 4
1 year time deposits 6.9
2 year time deposits 7
3 year time deposits 7.1
5 year time deposits 7.5
5 year recurring deposits 6.7
Monthly income account scheme 7.4
National savings certificate 7.7
Senior citizen savings scheme 8.2
Public provident fund scheme 7.1
Kisan Vikas Patra 7.5
Sukanya Samriddhi Account 8.2
How are interest rates calculated?
The Shaymala Gopinath Committee is responsible for recommending the methodology for rate revisions. The committee recommends that the interest rates for these schemes should be set at a range of 25 to 100 basis points higher than the government bond yields.
The rates are calculated against a set formula for mark-ups over the average yield of relevant G-Secs of comparable maturities during three months prior to each quarter.
What could be interest rates this time?
The formula set by the Finance Ministry in 2016 stated that PPF interest rate is 25 bps above the benchmark yield. With the benchmark 10-year bond yield averaging 7.02% from March to May 2024, PPF rate should be 7.27% from July 2024, based on this formula. Therefore, one can expect that the government may raise the PPF interest rate to 7.27% this quarter.
PPF: A beneficial investment tool
PPF is am effective tax-saving investment product that falls under the triple tax exemption category, commonly referred as Exempt-Exempt-Exempt (EEE). This means that tax benefits are provided at the stages of investment, accrual, and withdrawal.
One of the main advantages of PPF is that investments made under Section 80C of the Income-tax Act, 1961, up to Rs 1.5 lakh during each financial year are eligible for a deduction. Additionally, the interest earned on the PPF account is also tax-exempt.
Furthermore, when you withdraw the accumulated amount at maturity, it is tax-free, providing another layer of tax benefits. This exemption extends to both the principal amount invested and the interest earned. This makes PPF a favored investment choice for many individuals looking to save on taxes while securing their financial future.
In his blog, Dev Ashish, a SEBI-registered investment adviser and Founder of StableInvestor.com, highlighted that the higher Assets Under Management (AUM) of PPF might result in a significant cost impact on the government due to the tax-free interest burden. It could be another potential reason why the government is reluctant to raise interest rates on PPF.
Will there be an interest hike this time?
Siddharth Maurya, Founder and Managing Director of Vibhavangal Anukulakara Private Limited, said that the interest rates on PF, ESAF, and small savings schemes are sensitive political issues for the government. “Although there is pressure to increase rates to benefit millions of small savers, especially during periods of inflation, higher rates would lead to increased government expenditure and potentially higher fiscal deficits.”
Vishal Dhawan, a CFA and founder of PlanAhead.com, told the Economic Times: “Small savings rates are also unlikely to see any material change in our view, as the Union Budget presented in the second half of July will probably give better clarity on how the government plans to manage the trade-off between growth-oriented policies and fiscal control.”