The government, on Friday, announced the interest rates for small savings schemes applicable in the January-March 2024 quarter. As of March 31, 2024, select small savings schemes and post office schemes will witness an increase in their interest rates, according to the government’s official announcement on December 29, 2023.
It is noteworthy that one percentage point equates to 100 basis points. Despite these alterations, the interest rate for the Public Provident Fund (PPF) remains steadfast at 7.1 percent.
Moreover, there has been a 20 basis points increase in the interest rate for the Sukanya Samriddhi Account Scheme, bringing it to 8.2 percent for the period of January-March 2024. It’s worth noting that one basis point equals one-hundredth of a percentage point. Meanwhile, the interest rates for all other small savings schemes will remain unchanged from the rates offered in the October-December period.
The interest rates on small savings, determined by the government, are tethered to market yields on government securities with a spread of 0-100 basis points over the yield of comparable-maturity securities.
Consequently, when market yields on government securities experience fluctuations during the reference period, the interest rates on small savings schemes should adjust in tandem, following the government’s prescribed formula.
The government periodically reviews the interest rates of small savings schemes on a quarterly basis. The Shyamala Gopinath Committee proposed the methodology for determining these rates. In line with the committee’s suggestions, interest rates for different schemes are advised to be set within a range of 25 to 100 basis points above the yields of government bonds with corresponding maturities.
The interest rates of small savings schemes are intricately tied to the yields of 10-year Government Securities in the secondary market. Established formulae dictate mark-ups over the average yield of relevant G-Secs with comparable maturity from the preceding three months.
The central government conducts a quarterly review of small savings scheme interest rates, aligning them with the G-Secs yields observed in the preceding three months. This practice adheres to the recommendations of the Shyamala Gopinath Committee in 2011, ensuring that the interest rates of small savings schemes remain market-linked.
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Published: 29 Dec 2023, 05:23 PM IST