Govt notifies PPF NSC SSY and Other Small Savings Scheme Interest Rates for Q1 2020-21

The interest rate on Public Provident Fund (PPF), Sukanya Samriddhi Account, Kisan Vikas Patra, National Savings Certificate (NSC) and Other Small Savings Scheme have been reduced drastically by 70 bps to 140 bps. PPF will earn interest of 7.1 per cent for the first quarter of FY 2020-21 from April’20 to June’ 20 against 7.9 per cent in the preceding quarter.

The government has notified the interest rates on Small Savings Scheme for the 1st quarter of FY 2020-21 on 31.03.2020.

It was expected that there will be a big cut in the rate of interest of various small savings schemes to align the rate of interest on these schemes to the prevailing market rates on other savings instruments.

Recently, the rate of interest on EPF (Employees Provident Fund) is also reduced by 15 bps from 8.65 per cent for 2018-19 to 8.50 per cent for the financial year 2019-20. This is the lowest rate on EPF in the last seven years.

There is a reduction in the rate of interest of all the small savings schemes including PPF (Public Provident Fund), NSC (National Savings Certificate), SSY (Sukanya Samriddhi Yojana) and others except savings deposit as compared to the rate of interest for the preceding quarter between January and March quarter of FY 2019-20. The savings deposit will continue to earn same rate of interest of 4 per cent.

This was notified by the Department of Economic Affairs under the Ministry of Finance in a circular dated March 31, 2020.

The new financial year 2020-21 is about to begin with a reduced rate of interest after the same was kept unchanged for the last three quarters. The government has kept the rate of interest unchanged for the last three previous quarters for the FY 2019-20. The last time the government has reduced the interest rate was for the second quarter of the fiscal year 2019-20 and thereafter the same rates were continued for the rest of the year.

The interest rate on small savings schemes including PPF is revised on a quarterly basis.

There was apprehension in the market that the government may reduce the interest rates on the small savings scheme for the first quarter of the new fiscal year. This is due to the fact that the rate of interest on small savings schemes are substantially higher than other savings products in the market and the Finance Ministry was under pressure to align the interest rates on PPF and other small savings schemes with the market rates. The higher rate of interest on small savings was standing as a hindrance to the bankers for raising funds and cutting interest rates further.

Recently, the RBI has also reduced the interest rate by 75 bps to heal the economic damage due to outbreak of COVID-19.

For a Term Deposit of 1 year - 10 years term, the State Bank of India is offering an interest rate of 5.9 per cent which is increased by 50 basis points to 6.4 per cent for senior citizen deposit holders. (Source: www.sbi.co.in)

Compared to it, the PPF interest rate stood at 7.9 per cent whereas the 5-year Term Deposit was offering an interest rate of 7.7 per cent. The lowest interest rate it offers for a Term Deposit was 6.9 per cent. The new PPF interest rate is revised to 7.1 per cent.

The interest rate on the National Savings Certificates has been slashed by 110 bps to 6.8 per cent from 7.9 per cent.

The Kisan Vikas Patra will earn interest of 6.9 per cent and it will take 124 months to double the principal amount of investment against 113 months on 7.6 per cent interest in the preceding quarter. The reduction of interest rate is 70 bps.

The Sukanya Samriddhi Account Scheme will continue to fetch a higher rate of interest of 7.6 per cent compared to other small savings schemes in the general category. However, there is an 80 bps cut in interest rate as compared to the preceding quarter.

The flagship scheme for senior citizen namely, Senior Citizen Savings Scheme which was the top earner at 8.6 per cent till the last quarter has suffered a cut of 120 bps in the interest rate for the 1st quarter of 2020-21. The new rate of interest stands at 7.4 per cent. In this scheme, interest is paid quarterly.

The interest rate on 5-year Recurring Deposit Rate has suffered the highest reduction in the interest rate. The reduction is 140 bps and the new interest rate is 5.8 per cent against 7.2 per cent. For 5-year time-deposit, the reduction in interest rate is 100 bps and has been brought down from 7.7 per cent to 6.7 per cent. For 1-year, 2-years and 3-years time deposits rate of interest is reduced by 140 bps from 6.9 per cent to 5.5 per cent.

For a conservative investor, PPF and other small savings schemes like Sukanya Samriddhi Account and Senior Citizen Savings Scheme offer good returns. These products offer guaranteed, safe, and risk-free returns.

The 5-year Post Office Monthly Income Scheme (MIS), where interest is paid out monthly, offers 6.6 per cent after a cut of 100 bps.

Small savings rates are revised every quarter and if there is no change in the rates, the finance ministry retains the existing rates.

Small Savings Scheme Interest Rates for Q1 of 2020 -21

Instrument	Rate of Interest from 01.01.2020 to 31.03.2020	Rate of Interest from 01.04.2020 to 30.06.2020	Compounding Frequency
Savings Deposit	4	4	Annually
1 year Time Deposit	6.9	5.5	Quarterly
2 year Time Deposit	6.9	5.5	Quarterly
3 year Time Deposit	6.9	5.5	Quarterly
5 year Time Deposit	7.7	6.7	Quarterly
5 year Recurring Deposit	7.2	5.8	Quarterly
Senior Citizen Savings Scheme	8.6	7.4	Quarterly and Paid
Monthly Income Account	7.6	6.6	Monthly and Paid
National Savings Certificate	7.9	6.8	Annually
Public Provident Fund Scheme	7.9	7.1	Annually
Kisan Vikas Patra	7.6 (will mature in 113 months)	6.9 (will mature in 124 months)	Annually
Sukanya Samriddhi Account Scheme	8.4	7.6	Annually

Source: Department of Economic Affairs, Ministry of Finance

Recently, the government has introduced a new PPF Scheme, 2019 to replace all the previous PPF rules.

Under the new scheme, contributions into a PPF in a year can be deposited without any restriction. Earlier, there was limit of maximum of 12 contributions in a year. The maximum amount that can be deposited in a year is capped at Rs. 1,50,000 whereas the minimum amount of contribution is Rs. 500. Any deposit can be made in multiples of Rs. 50, instead of Rs. 5 under the rule of 1968.

Further, a discontinued (dormant) account will also earn the same rate of interest as an active account earns. But a penalty of 1 percent of interest rate will be applicable for premature closure of the account. An account can be closed prematurely only after 5 years and under specified circumstances.

Interest on loan taken against the PPF account is reduced by 100 basis points to 1 percent from 2 percent earlier.

Prior to 2016, the interest rates were announced once which was applicable for the full year. Interest rates were revised every year. From FY 2016-17, it was decided by the government that the interest rate on small savings schemes will be notified on a quarterly basis.

Similarly, Sukanya Samriddhi Account Scheme, 2019, Senior Citizens Savings Scheme, 2019, Kisan Vikas Patra Scheme, 2019 were introduced replacing the earlier respective rules.

Read the full text of the circular:

F.No.1/4/2019-NS

Government of India

Ministry of Finance

Department of Economic Affairs

(Budget Division)

North Block, New Delhi

Dated: 31.03.2020

Office Memorandum

Subject: Revision of interest rates for Small Savings Schemes-reg.

In exercise of the powers conferred by Rule 9(1) of the Government Saving Promotion General Rules, 2018, the rates of interest on various Small Savings Schemes for the first quarter of financial year 2020-21 starting from 1st April, 2020 and ending on 30th June, 2020 have been revised as indicated below:

Instrument	Rate of Interest from 01.01.2020 to 31.03.2020	Rate of Interest from 01.04.2020 to 30.06.2020	Compounding Frequency
Savings Deposit	4	4	Annually
1 year Time Deposit	6.9	5.5	Quarterly
2 year Time Deposit	6.9	5.5	Quarterly
3 year Time Deposit	6.9	5.5	Quarterly
5 year Time Deposit	7.7	6.7	Quarterly
5 year Recurring Deposit	7.2	5.8	Quarterly
Senior Citizen Savings Scheme	8.6	7.4	Quarterly and Paid
Monthly Income Account	7.6	6.6	Monthly and Paid
National Savings Certificate	7.9	6.8	Annually
Public Provident Fund Scheme	7.9	7.1	Annually
Kisan Vikas Patra	7.6 (will mature in 113 months)	6.9 (will mature in 124 months)	Annually
Sukanya Samriddhi Account Scheme	8.4	7.6	Annually