The Rate of Interest of Various Small Savings Schemes Have Kept Unchanged by the Government

In the middle of gloom and doom, the government of India has announced some good news for investors of Fixed Deposit. The government has not changed the rate of interest of various small savings schemes. The small savings schemes like National Savings Certificate (NSC), Public Provident Fund (PPF), etc will continue to get the same rate of interest for the quarter that will end in December 2020 as they were in the last quarter, which was July to September 2020.

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This announcement was made by the finance minister through a circular which was sent on 30th September 2020. According to this circular, the Public Provident Fund will continue to fetch a 7.10% rate of interest, whereas the Senior Citizen Savings Scheme will fetch 7.40% same as before. In the same manner Post Office Small Savings Scheme will as well earn the same rate of interest which was 5.5% and 6.7% as per the tenure of the policy.

The rate of interest on post office term deposit schemes is scheduled for review at the end of December 2020.

Mentioned below is the rate of interest on different small savings schemes available for the quarter 2020 – 2021.

Rate of Interest on Post Office Small Savings Scheme:

Investment Instrument

Compounding Frequency

Rate of Interest from 1st October 2020

Savings Account



One Year Term Deposit



Two Years Term Deposit



Three Years Term Deposit



Five Years Term Deposit



Five Years Recurring Deposit



Five Years Senior Citizen Savings Scheme

Quarterly and Paid


Five Years of Monthly Income Account

Monthly and Paid


Five Years National Savings Certificate



Public Provident Fund



Sukanya Samriddhi Yojana



Kisan Vikas Patra


6.9% which matures in 24 months

 Note: The rate of interest is subject to change.

Relief for the Investors of Fixed Income:

In the current financial year's first quarter, i.e. April to June 2020, the Indian government has slashed the rate of interest of Post Office Small Savings Schemes by 70bps to 140bps, In the next review in December, if the government cuts the rates even by the smallest amount like 20bps, as well, then the rate of interest can fall to 7% or less.

It is a big relief that the government has maintained a constant rate of interest for small savings schemes in the last review as the rate of interest of banks' fixed deposits have as well go down.

For example, after the latest cut down in the rate of interest of fixed deposits of State Bank of India in the last one year, the FD of one year with SBI now earns interest of 4.9%, which was 5.10% previously. The new SBI fixed deposit interest rate are applicable from 10th September 2020. Compared to these rates, the rate of interest on a one-year term deposit scheme offered by the Post Office is 5.5%. This fixed deposit interest rate is 0.60% higher than the rate of interest offered by a one-year SBI fixed deposit.

For example: If you invest Rs. 1 Lakhs in a State Bank of India's FD, then after one year, you will get approximately Rs. 1,04,991 whereas an investment in term deposit of post office will get you Rs. 1,05,614 by assuming compounding every quarter. This difference is of Rs. 623.

The rate of interest on a savings account is also not spared. A savings account in State Bank of India now earns an interest rate of 2.7% per year with effect from 31st May 2020. A savings account of ICICI Bank for a balance lesser than Rs. 50 Lakhs earns a rate of interest of 3% per year from June 4th, 2020. The Kotak Mahindra Bank that has the USP of providing the highest rate of interest on its savings accounts now offers a 3.5% rate of interest for its savings accounts having a balance up to Rs. One Lakhs. For the savings accounts having a balance of more than Rs. 1 Lakhs, Kotak Mahindra Bank is providing a rate of interest of 4% per year.

How Are the Rate of Interest Set for Small Savings Schemes?

The rate of interest of small savings schemes is reviewed for three months by the Indian government. The formula to calculate the rate of interest of small savings schemes was suggested by a committee with the name Shyamala Gopinath Committee. This committee has suggested that the rates of interest of different small savings schemes have to be 25 to 100bps higher than the other government schemes with similar tenure.

Why Do Interest Rates Reduce?

The reduction in the rate of interest of these schemes is part of the review exercise that the Indian government, which is being followed since 2012.  The alterations made in the rates are as per the changes that are yielded in government securities for which the small-savings investment plans are benchmarked.

What Should You Do with Your Post Office Savings Scheme?

While the reduction in rates is huge, but it was pending for a long. You may continue to invest in these plans for different goals as per your asset allocations. You must first exhaust the limits of PPF, SCSS, and Sukanya Samriddhi Yojana and then move to some other investment option. Keep investing in these schemes as long as possible and do not get attracted just by attractive rates. Despite rate cuts in their rate of interest, the senior citizens must avoid opting for credit instruments that are offering returns that are linked to the market.

Summing It Up!

Almost all the small savings schemes are safer than the deposits of commercial and co-operative banks. Do not consider risky deposits offered by corporates as they promise very high returns. Go for a safe and smart savings scheme that not only offer you safety but also a good rate of interest so that you can get better returns for sure. Any entity other than a small savings scheme offering higher returns must be completely checked for risks and should be avoided.

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