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ICRA expects rates on small saving schemes likely to be revised.
In its latest report, ICRA explained that the interest rates on small saving schemes~ are fixed on a quarterly basis and are linked to the average end-month G-Sec yields of the corresponding maturity in the trailing three months (termed as the reference period). The rates on such schemes were last revised for Q1 FY2021.”
Further, ICRA’s note highlighted that for the 1Y and 2Y term deposit schemes, 5Y Recurring Deposits, and 5Y Kisan Vikas Patra, the interest rates are calibrated to move closer to the interest rates of the similar instruments of the banking sector, and hence, do not enjoy a spread over comparable G-sec yields since April 2016.
“The spreads between 1Y and 2Y term deposits and their comparable G-sec yields would turn negative if the rates on these schemes are not revised upwards for Q3 FY2023; moreover, these would be lower than the spreads in Q4 FY2019, when small savings rates were last revised upwards,” ICRA’s note added.
Similarly, ICRA’s note said, “the spreads between 5Y Recurring deposits/5Y RD and G-sec yields of the corresponding maturity would fall into the negative territory if left unchanged for Q3 FY2023 when compared with the reference period for the quarter.”
Whether the government will hike the interest rates of small saving schemes will be keenly watched.
Check the latest rates of small savings schemes
Post Office Savings Account(SB)
Here, an individual can open a single or joint account. The minimum investment for opening the account is ₹500, while there is no maximum limit. An interest rate of 4% is offered.
Interest is calculated on the basis of the minimum balance between the 10th of the month and the end of the month and allowed in whole rupees only. However, there will be no interest allowed in a month if the balance between the 10th and last day of the month drops under ₹500.
There is a tax benefit available in this account. For all savings accounts, interest up to ₹10,000 earned in a financial year is exempted from tax under section 80TTA of the Income Tax Act. This also means that if a depositor’s total interest earned in a fiscal year is below ₹10,000 then he or she will not have to pay any tax on it.
5-Year Post Office Recurring Deposit Account (RD)
As the name suggests, this scheme has a tenure of 5 years. It offers an interest rate of 5.8% per annum which is compounded quarterly. The minimum investment in this scheme is ₹100 and in multiples of ₹10. There is no maximum limit.
After 12 installments are deposited and the account continued for 1-year, then the depositor is eligible to avail of the loan facility. The scheme can be extended for further 5 years by giving an application at the concerned Post Office.
As per the India Post website, the 5.8% maturity value for ₹100 denomination under the scheme is:
5 Year = ₹6,969.67 After extension with deposit.
6 Year = ₹8,620.98
7 Year = ₹10,370.17
8 Year = ₹12,223.03
9 Year = ₹14,185.73
10-Year = ₹16,264.76
Post Office Time Deposit Account (TD)
There are four schemes offered under Post Office Time Deposit namely — 1-year Time Deposit, 2-year Time Deposit, 3-year Time Deposit, and 5-year Time Deposit. These accounts can be opened with a minimum of ₹1,000 and in multiples of ₹100. There is no maximum limit on the investment. The deposit amount shall be repayable after the expiry of 1 year, 2 years, 3 years, or 5 years (as the case may be) from the date of opening.
According to India Post, no deposit shall be withdrawn before the expiry of six months from the date of deposit. If the TD account closed after 6 months but before 1 year, the PO Savings Account Interest rate will be applicable. However, for 2-year, 3-year, and 5-year TD accounts, if prematurely closed after 1 year, interest shall be calculated 2 % less than of TD interest rate (i.e. 1/2/3 years) for completed years, and for a part period less than a year, PO Savings Interest rates will be applicable.
The investment in the 5-year TD accounts also qualifies for tax benefits up to ₹1.5 lakh under section 80C of the IT Act.
For 1-year, 2-year, and 3-year Time deposits, the government offers a 5.5% interest rate each annually. For instance, the annual interest will be ₹561 on ₹10,000 deposit.
Meanwhile, the interest rate is 6.7% on a 5-year TD. For example, the annual interest will be ₹687 on the ₹10,000 deposit under the account.
Post Office Monthly Income Scheme Account (MIS)
A depositor can open this account with a minimum of ₹1,000. However, a maximum of up to ₹4.50 lakh deposits are allowed in a single account and ₹9 lakh in a joint account.
Here, an interest rate of 6.6% is offered per annum which is payable monthly from the date of opening and so on till maturity. However, it needs to be noted that if the interest payable every month is not claimed by the account holder such interest shall not earn any additional interest. Notably, interest is taxable in the hand of the depositor.
The account has a maturity period of 5 years. If the account is closed after 1-year of tenure but before 3 years from the date of the account opening, then 2% from the principal will be deducted. However, if the account is closed after 3 years but before 5 years from the date of opening, then 1% will be deducted from the principal amount.
Senior Citizen Savings Scheme (SCSS)
This account is meant for senior citizens. Individuals above 60 years of age are eligible for opening the account. Also, retired civilian employees above 55 years of age and below 60 years of age, and retired defense employees above 50 years of age but below 60 years — are also eligible for the account.
There is an interest rate of 7.4% offered per annum. The interest is payable from the deposit of 31st March, 30th September, and 30th December in the first instance, and thereafter, the interest is paid on 31st March, 30th June, 30th September, and 30th December.
A minimum deposit of ₹1,000 is allowed in the account which can be extended up to a maximum of ₹15 lakh. The account can be opened individually and jointly.
Notably, the interest earned up to ₹50,000 in a financial year and prescribed TDS is taxable. However, no TDS will be deducted if form 15 G/15H is submitted and accrued interest is not above ₹50,000.
But the investment is applicable for tax exemption up to ₹1.5 lakh under section 80C.
The account can be prematurely closed any time after the date of opening. There is a tenure of 5 years for this scheme.
15-year Public Provident Fund Account (PPF )
Under this scheme, an interest rate of 7.1% is offered which is compounded yearly. A minimum deposit of ₹500 is allowed under the account while the maximum deposits can be up to ₹1.5 lakh in a fiscal year. Interest is credited to the account at the end of each financial year.
PPF accounts do have a loan facility available, however, after the expiry of one year of the account. For example, if the account is opened in fiscal FY11, then the loan can be availed against the scheme in FY13.
The deposits qualify for tax benefits up to ₹1.5 lakh under section 80C. Also, the interest earned is tax-free in this account.
The maturity period is 15 years.
Sukanya Samriddhi Accounts (SSA)
This account is meant for a girl child. The government offers a 7.6% interest rate which is calculated on yearly basis. A minimum of ₹250 deposits is allowed and can go up to a maximum of ₹1.5 lakh in a financial year. Deposits can be made in lump-sum, while there is no limit on the number of deposits either in a month or in a financial year.
Just like the PPF account, the deposits also are eligible for tax benefits under section 80C. While interest earned is tax-free. Interest is credited to the account at the end of each financial year.
The account can be opened by a guardian in the name of the girl child below 10 years of age. While this account can be opened for a maximum of two girls in a family. In the case of twins, triplets girls — more than two accounts can be opened. The account will be operated by the guardian till the girl child attains the age of majority (i.e. 18 years).
The overall maturity period in the account is when the girl turns 21 years old. Or at the time of marriage of the girl after attaining the age of 18 years.
National Savings Certificates (NSC)
This scheme has a tenure of 5 years. It offers an interest rate of 6.8% compounded annually but payable at maturity. For instance, ₹1,000 deposits will grow to ₹1,389.49 after 5 years.
In the scheme, a depositor can invest a minimum of ₹1,000. There is no maximum limit.
The scheme can be opened individually and jointly (up to 3 adults). In the case of a minor, a guardian can open the account on behalf of the minor. However, a minor above 10 years of age can open an account in his or her name.
NSC may be pledged or transferred as security, by submitting the prescribed application form at the concerned Post Office supported by an acceptance letter from the pledgee.
Deposits here has tax benefit under section 80C.
Kisan Vikas Patra (KVP )
The scheme offers a 6.9% interest rate which is compounded annually. The amount invested doubles in 124 months aka 10 years and 4 months. A minimum deposit of ₹1,000 is allowed under the scheme, while there is no maximum limit.
The eligibility to open the account is the same as National Savings Certificates (NSC). However, any number of accounts can be opened under the scheme.
The deposit shall mature on the maturity period prescribed by the Ministry of Finance from time to time as applicable on the date of deposit.
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