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New Interest Rates on Small Savings Withdrawn Within Hours

The Finance Ministry removed the order on interest rates on small savings Thursday, just 12 hours after making the decision to reduce the rate cut on small savings.

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The  Govt slashed interest rates on various small savings schemes by 40-110 basis points on Wednesday. The new rates were supposed to take effect on April 1.

The “orders given by supervision shall be withdrawn,” Finance Minister Nirmala Sitharaman said Thursday morning. The govt slashed interest rates on various small savings schemes by 40-110 basis points on Wednesday.

Small savings rates are related to yields on benchmark government bonds, which have dropped in the last year as the Reserve Bank of India lowered interest rates to help the economy. For the first quarter of 2021-22, the interest rate on savings deposits has been lowered from 4% to 3.5 percent.

The Public Provident Fund (PPF), one of the most common fixed-income items, will now pay a rate of 6.4 percent, down from 7.1 percent previously. The National Savings Certificate (NSC) will now yield 5.9%, down from 6.8% previously, and the girl child savings scheme Sukanya Samriddhi Yojana will now yield 6.9%, down from 7.6% previously.

Time deposit rates have interest rates on Senior Citizen Savings Schemes have been reduced to 6.5 percent from 7.4 percent, while Kisan Vikas Patra rates have been reduced to 6.2 percent from 6.9 percent, so been cut dramatically. The steepest cut was 110 basis points to 4.4 percent from 5.5 percent for one-year time deposits. According to the new rates announced by the finance ministry, rates on two, three, and five-year time deposits have been reduced by 40-90 basis points.

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Inflation has been creeping up in recent months, causing a decline in small savings rates. The government’s latest consumer inflation data showed the headline number rising to 5.03 percent in February from a 16-month low of 4.06 percent in January, a three-month high.

As a result, some small savings products may not offer much in terms of real interest rates, which are the rates a saver earns after inflation is factored in.

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Interest rates on Senior Citizen Savings Schemes have been reduced to 6.5 percent from 7.4 percent, while Kisan Vikas Patra rates have been reduced to 6.2 percent from 6.9 percent.

 

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