The government on Thursday raised rates for some small savings schemes that do not enjoy tax benefits as it began to pass on interest rate hikes to depositors.

While the interest rate of the popular PPF and NSC has been retained, the rates of five other schemes where the income generated is taxable have been raised by up to 30 basis points.

The revision comes after nine quarters of status quo. The interest rate on small savings plans was last revised during the first quarter of 2020-21, when rates were reduced.

Interest rates for small savings plans are communicated on a quarterly basis.

With the revision, a three-year term deposit with post offices would gain 5.8 percent from the existing 5.5 percent, an increase of 30 basis points for the third quarter of the current fiscal year. .

The savings scheme for senior citizens will gain 20 basis points more to 7.6% from the current rate of 7.4% during the October-December period, a notification from the Ministry of Finance said.

Regarding Kisan Vikas Patra (KVP), the government has revised both occupancy rates and interest rates.

The new rate for KVP would be 7% and the maturity period is 123 months, compared to the current interest rate of 6.9% and the maturity period of 124 months.

The monthly income scheme would earn 10 basis points more at 6.7% from the existing 6.6%.

However, the Public Provident Fund (PPF) and the National Savings Certificate (NSC) will continue to bear an annual interest rate of 7.1% and 6.8%, respectively, in the third quarter of this financial year.

The Post Office’s one-year term deposit scheme will continue to pay interest at 5.5 per cent during the quarter, as it had been offered in the previous three months.

Five-year term deposits will earn 6.7% interest, payable quarterly, while five-year recurring deposits will earn 5.8% interest, the same as Q2 of the fiscal year 23.

The interest rate on the Sukanya Samriddhi Yojana Girls’ Savings Scheme has been maintained at 7.6%, while savings deposits will continue to earn 4% per annum.

The interest rates on seven plans were maintained while the increase was made in five plans.

Since May, the Reserve Bank has raised the policy rate by 140 basis points, prompting banks to raise interest rates on deposits as well.

The country’s largest lender, the State Bank of India (SBI), raised the interest rate on 1-year to less than 2-year fixed deposits by 15 basis points to 5.45% in August, from 5.30%.

Retail price inflation stood at 7% in August, remaining above the RBI’s tolerance level for the eighth consecutive month.

In a separate statement regarding the Old People’s Savings Scheme (SCSS), the Ministry of Finance said that in cases where the SCSS account holder(s) die and the account is closed at the request of the trustee/heir legal, the interest rate as applicable on the SCSS scheme would be paid until the date of the death of the account holder.

Thereafter, the applicable interest rate on the Postal Savings Account would be paid from the date of death of the account holder until the date of the final closure of the account.

The premature closure clause does not trigger in the event of the death of the SCSS account holder, he said.

Early account closure is only applicable when the SCSS account holder requests the closure of his own SCSS account before the expiry period. In such cases of premature account closure, a penalty would be levied as mentioned in the SCSS rules, he said.

How are interest rates calculated for PPF, Sukanya Samriddhi accounts and other small savings plans?

The interest rates of the small savings plans are aligned with the yields of government securities (G-sec) of similar maturity, according to the previously mentioned press release by the Ministry of Finance. The Union government revises the interest rate for small savings schemes every quarter based on the G-Sec returns of the previous three months, according to the mentioned release from the Ministry of Finance. This is in line with the recommendations of the Shyamala Gopinath Committee, 2011 to ensure that interest rates for small savings schemes are linked to the market.

Interest rates for small savings schemes are linked to market yields on G-secs with a lag and are reset, set on a quarterly basis at a spread ranging from 0 to 100 basis points on (100 basis points = 1 percent) and above G-Sec yields of comparable maturities, according to the Reserve Bank of India (RBI).