Lock In Small Savings Schemes as Rates Likely to Change from July 1

 Mumbai: Risk-averse investors may invest in small savings schemes now as the government is likely to reduce the interest rates from July 1. These schemes are currently offering higher returns than bank fixed deposit schemes where interest rates continue to fall. The interest rates on small savings schemes are aligned with the government security rates of similar maturity with a spread and are reset every quarter. The government last revised some schemes’ rates for the fourth quarter of 2023-2024 which means that the interest rates have remained unchanged on various small savings schemes for the last five quarters. When interest rates are revised, Small savings schemes pay the contracted rates till maturity. However, in case of PPF or Sukanya Samriddhi Scheme, the entire balance will earn the revised rates.

Experts say the government may reduce the rates of small savings from July 1 as the interest rates in the economy have fallen.

Says DK Joshi, chief economist at Crisil Ltd said, “With the RBI reducing interest rates last week and introducing liquidity measures, the prospects of interest rate reduction in small savings schemes has also increased. 

At present, there are 12 small savings schemes, including savings accounts. These schemes offer investors safety, longer lock-in periods with greater certainty on returns.

Says Balwant Jain, tax and investment expert, “The government on June 30 is likely to announce a reduction in small savings scheme interest rates. One can consider locking in these scheme before lower rates are announced. Schemes such as Senior Citizen Savings Scheme, Monthly Income Scheme and National Saving Certificate can be considered. Also, one can consider RBI Floating Rate Bond which offers 35 basis points over the National Saving Certificate.”

When compared with bank fixed deposits, the Post office Scheme offer higher returns. For instance, while State Bank of India offers highest interest rate of 6.7 percent on a deposit with two to three-year tenure, a two year post office deposit is offering 7 per cent while three year deposit offers 7.1 per cent. The 5 year Senior Citizen Saving Scheme offers 8.2 per cent, the 5 years Monthly Income Scheme offers 7.4 per cent, and the 5 year National Saving Certificate offers 7.4 per cent. The interest rate on the Kisan Vikas Patra is 7.5 per cent with investments maturing in 115 months.

Following the Reserve Bank of India’s (RBI) third repo rate cut of 2025 last week, several banks have announced a reduction in deposit rates. Alongside the repo rate cut of 50 basis points, the RBI also reduced the Cash Reserve Ratio (CRR) by 100 basis points from 4 per cent to 3 per cent a phased move starting in September that is expected to inject nearly Rs 2.5 lakh crore into the banking system. Banks already have cut deposit rates by 60-70 basis points and are further reducing rates.