PPF and other small savings schemes can see higher interest rates in October

Interest rates for modest savings programmes are scheduled for review by the month's end, and with government bond yields on the rise, that might mean an increase in rates for savers. The minor savings plans include Public Provident Fund Account (PPF), Sukanya Samriddhi Accounts (SCA), Senior Citizen Savings Scheme (SCSS), and National Savings Certificates (NSC) among others. These frauds are also referred to as "post office schemes."

The reason why the PPF, Sukanya Samriddhi, and Senior Citizens' Savings Scheme interest rates may rise in the near future.

The benchmark 10-year bond rate has regularly been over 7 per cent, since April 2022. From June through August of 2022, it averaged 7.31%, according to figures provided by investing.com.

Going by the formula released by the Ministry of Finance previously via a press release dated March 18, 2016, PPF interest could grow up to 7.56 per cent in the current quarter. (Average three-month yield from G-Sec+25 basis points). The current interest rate for PPF accounts is 7.1%.

Similarly, the interest rate of the Sukanya Samriddhi Scheme could climb up to 8.3 per cent soon from the existing 7.6 per cent interest rate. (G-Sec three-month yield average +75 bps) The interest rates on modest savings accounts will also be evaluated at the month's conclusion.

However, it needs to be mentioned that the government does not always promptly modify minor savings rates as per the formula. In many cases, there is a significant delay.

In the April-June 2020 quarter, interest rates for modest savings schemes were reduced. The interest rate has been held steady since then and will continue to do so until September of 2022. A considerable increase in government yield in recent months, however, may soon lead to an increase in the interest rate of modest savings programmes.

According to the aforementioned news statement from the Finance Ministry, the interest rates of modest savings plans are in line with the yields of the government securities (G-sec) of equivalent maturity. According to the aforementioned publication by the Finance Ministry, the Union government examines the interest rate of modest savings programmes every quarter based on the G-Sec yields of the previous three months. The Shyamala Gopinath Committee, 2011 recommended doing this so that modest savings schemes' interest rates would be connected to the market.

According to the Reserve Bank of India, modest savings programme interest rates are reviewed and fixed quarterly at a spread of 0–100 basis points above (100 basis points = 1 per cent) and above G-Sec yields of comparable maturities (RBI).

In 2011, the Shyamala Gopinath Committee made their formula recommendations. According to the 2016 Finance Ministry-reported formula, the PPF has a spread of 25 basis points, the Sukanya Samriddhi Yojana has a spread of 75 basis points, and the Senior Citizens Savings programme has a spread of 100 basis points. The group advised a yearly modification, but the administration had decided to evaluate tariffs every quarter starting April 2016.

It must be highlighted that the specified formula is not always being followed. Even after a change in the G-Sec yields, the Union government has on multiple occasions in the past refused to adjust the interest rates of the PPF, Sukanya Samriddhi, and other modest savings plans.

Interest rates for micro-savings programmes will be reviewed on September 30. After the evaluation, the new rates will take effect for the October-December quarter of FY2022-23, or remain the same if no changes are made. The interest rate for the modest savings plans for the third quarter of FY 2022-23 is scheduled to be published around September 30. Curious to see if the Union government uses the Gopinath formula to set interest rates this time around.