You might have good news in store as interest rate on small saving schemes (SSS) including public provident fund (PPF) and national savings certificate (NSC) and kisan vikas patrika (KVP), might go up in the next quarter. This could be a welcome move, considering in the last quarter (January-March) the government cut the interest rate on several post office schemes by 0.2 percentage points. Also Read - SBI All Set to Slash Interest Rate on Savings Account From November 1 | All You Need to Know Also Read - SBI Slashes Interest Rates on Savings Deposits With Balance Upto Rs 1 Lakh to 3.25%
Interest rates on small savings schemes got linked to government bond yields in 2011 and were revised once a year. However, from April 2016 onwards interest rates are reset every quarter based on the average yield on government bonds of similar maturity papers in the previous quarter. Not just the yield the government also pays a mark-up of around 25 to 100 basis points on such small saving schemes. For example in case of PPF mark up is 25 bps. One basis point is one hundredth of one percentage.
Currently, interest rates on small saving schemes have dropped to a multi-decade low. After a series of cut in the repo rates, the government had to cut interest rates on small savings schemes, too. But now with the yield moving up and interest rates on post office scheme being formulae driven it is possible that the government would increase the rates. Yields have started rising on the bond towards the end of 2017, currently it is trading at 7.72%.
With bank fixed deposits offering as low as 6.25-6.50 per cent, investors have been looking for investment avenues beyond fixed deposits. However, with interest rates not likely to go down further as liquidity is not as good as it was just after demonetisation, banks are likely to increase their deposit rates. For example: State Bank of India increased its term deposit rates by 10-75 bps on March 1, other banks are likely to follow the trend set by the largest bank of India. Also Read - Interest Rates to Fall as SBI Cuts MCLR by 35 Bps Across All Tenors From April 10