Government bond yields are seeing an increase. This is expected to see an increase in the interest rates of small savings schemes. The interest rates of schemes like Public Provident Fund (PPF), Sukanya Samriddhi Yojana and Senior Citizen Savings Scheme are to be decided by the end of this month. In this there is also National Savings Certificate or NSC. Such small savings schemes are also called post office schemes.
Why can the rate increase?
The benchmark 10-year bond yield has remained above 7 per cent. This increase is continuing from April 2022 onwards. The average bond yield from June to August 2022 has been seen at 7.31%. On this basis, if you apply the formula for calculation of interest of the Ministry of Finance, then the rate of PPF can go up to 7.56 percent in the next quarter. This includes the three-month average yield of G-Secs, along with an increase of 25 basis points. Currently, 7.1 percent interest is being available on PPF.
On this basis, the interest of Sukanya Samriddhi Yojana can go up to 8.3 percent, which is currently 7.6 percent. This includes the three-month average live yield plus the rate of 75 basis points. The rates of these schemes are to be reviewed at the end of this month. Therefore, it is expected that interest rates may increase depending on the bond yield. One thing has to be kept in mind that the government does not always increase the interest rates according to the increase in the bond yield.
When were the rates increased before
The increase in interest rates of small savings schemes was seen in April-June 2020. There has been no change in interest rates since then till September 2022. However, bond yields have seen a steady rise in recent months. This has given hope that it is possible to increase the rates of small savings scheme in future.
How is interest calculated?
The returns of the Small Savings Scheme are calculated on the basis of G-Sec i.e. the yield of the government security. Yield and small savings scheme should have the same maturity. On the basis of G-Sec yield, the Finance Ministry reviews the rates of small savings schemes every quarter. In this, the return of G-Sec Yield is seen for the previous quarter. The Shamamala Gopinath Committee, 2011 was constituted for the calculation of interest, which gave the formula for calculation of interest. The committee had suggested reviewing the rate once a year, but the government implemented it every quarter.
