Government Slashed Small Savings Schemes Interest Rates (in Q1 FY22)
A big blow to the fixed income investors, as Government has slashed the interest rates of Small Savings Schemes for the quarter April-June 2021. In this article we will see the updated Interest Rates on Small Savings Schemes – EPF, PPF, SCSS, SSY, NSC, KVP for Q1 FY2021-22 (April-June).
As per a finance ministry circular, dated March 31, 2021, interest rates on small savings schemes have been cut by massively between 40-110 basis points for the first quarter of the financial year 2021-22 (April-June). The interest rates for small savings schemes are reviewed and notified by the finance ministry on a quarterly basis.
If you are planning to invest in any of these savings schemes, you should know about their interest rates. For all the small savings schemes interest rates are aligned with Government security rates of similar maturity, with a little spread.
Interest Rates on Different Small Savings Schemes
Below you can find the interest rates for various small savings schemes:-
Public Provident Fund (PPF)
- PPF is a long-term investment for a period of 15 years. The government will review the PPF rates quarterly.
- Interest rate on PPF Scheme has been slashed by 70 bps from 7.1% to 6.4% for the 1st quarter of FY2021-22 (April-June). The PPF interest rate below 7% would be the first time since 1974, a 46 year low.
- Compounding Frequency : Annually
- Employee Provident Fund is a long term investment tool. Interest rate on EPF contributions is revised every year.
- A major relief to 60 million subscribers of the Employees’ Provident Fund Organisation (EPFO).
- The Employees’ Provident Fund Organisation (EPFO) on March 4, 2021 announced to Retain EPF interest rates at 8.50% for the current financial year 2020-21, same as preceding fiscal 2019-20.
- While this continues to be the lowest since 2012-13, it is better than the anticipated fall in interest rate on the back of higher withdrawals and lower deposits to the EPFO during the pandemic.
- The EPFO announcement of the PF rate at 8.5% is a welcome news for all subscribers considering that all other interest rates are falling.
- Since FY 2013-14 EPFO has consistently generated returns more than 8.50%. The interest rate on investments in EPF was 8.65% per annum for FY2018-19.
Senior Citizen Savings Scheme (SCSS)
- The government reviews the SCSS rates quarterly. But, once a subscriber has enrolled, the rates will remain unchanged for the tenure. Deposit has a maturity period of 5 years.
- The interest rate for Senior Citizens Savings Scheme slashed from 7.4% to 6.5% per annum for the 1st quarter of FY2021-22 (April-June).
- Compounding Frequency : Quarterly and Paid
National Savings Certificate (NSC)
- From FY2016–17 onwards, the interest rate on the NSC will be revised every quarter as per the prevailing government-bond rates.
- However, once you have invested in the NSC, the rate applicable that time will remain the same throughout the tenure of the investment. Certificate comes with the maturity period of 5 years.
- The interest rate on National Savings Certificate ie. NSC (5 year VIII Issue) has been declined from 6.8% to 5.9% for the 1st quarter of FY2021-22 (April-June).
- It is compounded annually but is payable at maturity.
- The 10 year option of the NSC has been discontinued.
Kisan Vikas Patra (KVP)
- The KVP rates will be notified every quarter as per the prevailing government security rates. Scheme will be mature in 138 months (11 years 6 months) from earlier maturity of 124 months (10 years 4 months) with the applicable interest rate.
- However, once you have made an investment, the rate will remain unchanged for you throughout the tenure.
- KVPs has slashed the interest rates from 6.9% to 6.2% for the 1st quarter of FY2021-22 (April-June).
- Compounding Frequency : Annually
- Although the yield on dated Government Securities is seeing a downtrend, the Government had kept small saving schemes interest rate unchanged for the last quarter January-March 2021.
- However, for Q1 FY22, April-June 2021, Government slashed the small saving scheme interest rates by massive 40-110 bps.
- These interest rate cuts are in-line with overall interest rate movement in financial system. When bank lending deposit rates fall sharply, small savings rates have to follow to align with the larger trend and to bring these interest rates in consonance with the interest rates prevailing in the economy.
- Department of Economic Affairs, Ministry of Finance has made an announcement regarding it on March 31, 2021.
- Conservative/ Fixed Income Investors who depend primarily on income from these small savings schemes may now need to revisit their portfolio. Individuals with investments in fixed deposits or small savings schemes should consider the real rate of return from these instruments before investing.