This was announced by the Ministry of Finance through a circular on September 30, 2021. According to the ministry’s circular, PPF will continue to earn 7.10%, NSC will earn 6.8%, and Post Office Monthly Income Scheme account will earn 6.6%.
Here is a look at the interest rates on various small savings schemes for the third quarter of FY 2021-22.
| Machine | Interest Rate (%) for October 1, 2021 to December 31, 2021 | compounding frequency |
| saving account | 4 | every year |
| 1 year time deposit | 5.5 | quarterly |
| 2 years time deposit | 5.5 | quarterly |
| 3 years time deposit | 5.5 | quarterly |
| 5 years time deposit | 6.7 | quarterly |
| 5 Year Recurring Deposit | 5.8 | quarterly |
| 5 Year Senior Citizen Savings Scheme | 7.4 | quarterly payment |
| 5 Year Monthly Income Account | 6.6 | monthly and payment |
| 5 Year National Savings Certificate | 6.8 | every year |
| public provident Fund | 7.1 | every year |
| Kisan Vikas Patra | 6.9 (will mature in 124 months) | every year |
| Sukanya Samriddhi Yojana | 7.6 | every year |
Source: Ministry of Finance Circulars
Relief for debt investors
The government’s status quo on small savings scheme rates comes a week ahead of the RBI’s bi-monthly monetary policy review. The apex bank is said to once again maintain status quo on key rates, which is again a reason to cheer for investors of fixed income products.
This is because RBI has not made any change in the rates, banks cannot further cut interest rates on FDs.
FD, bank savings account or small savings schemes?
Despite banks not cutting FD rates for a few months, small savings schemes, on the whole, still earn high interest rates.
Here is the math: Investing Rs 1 lakh in SBI’s 1-year FD will give you Rs 1,04,991 (interest rate 4.90%), while investing in it will give you Rs 1,04,991. post office fixed deposit 1,05,614 (interest rate of 5.5%) assuming quarterly compounding. This is a difference of Rs 623.
Apart from fixed deposits, the interest rate on savings accounts offered by some large banks is also lower than the interest rate on post office savings account.
Post office savings account is currently offering 4% p.a while SBI is offering 2.70% p.a. interest rate on its savings account. Similarly, ICICI Bank is offering 3-3.5% per annum.
Small savings rate cut debacle
On March 31, 2021, the government had actually announced a rate cut for small savings schemes for the quarter ended June 30, 2021. Late in the evening of March 31, 2021, the Finance Ministry had announced that interest rates on small savings schemes have been reduced. A sharp cut between 40-110 basis points (100 basis points/bps = 1%) for the first quarter of the financial year 2021-22. The interest rate after this deduction PPF interest rate It would have fallen below 7% for the first time since 1974, a 46-year low.
Then immediately through an early morning tweet, the government announced that the sharp cut in interest rates on small savings schemes has been withdrawn.
How are interest rates decided for small savings schemes?
The government reviews and announces interest rates on small savings schemes every three months. The formula for calculation of interest rates on small savings scheme was suggested by Shyamala Gopinath Committee. The committee had suggested that interest rates on various schemes should be 25-100 basis points higher than yields on government bonds of similar maturity.