The central government has increased interest rates on recurring deposits (RD) by 0.2% for October-December, making it the fifth consecutive quarter when rates for these schemes have been increased. On Friday, September 29, the Finance Ministry issued a notification regarding this.
According to the notification, interest rates on 5 year RD have been increased from 6.5% to 6.7%. Interest rates on all other small savings schemes have been kept the same as in July-September. The highest interest of 8.2% is available on Senior Citizen Saving Scheme.
The Finance Ministry had not changed the interest rates of small savings schemes for nine consecutive quarters. After this, it has started increasing from October-December 2022.
In the last quarter, the government had increased interest rates on two small savings schemes. The interest rate on 1 year time deposit of post office was increased from 6.80% to 6.90%. The rate on 2-year time deposits was increased from 6.9% to 7%. At the same time, interest rates on 5 year post office RD were increased from 6.2% to 6.5%.
The interest rates of Small Savings Scheme are reviewed every quarter. The formula for determining their interest rates was given by the Shyamala Gopinath Committee. The committee had suggested that the interest rates of these schemes should be 0.25-1.00% higher than the yield of government bonds of similar maturity.
Small Savings Scheme is the major source of household savings in India and comprises 12 instruments. In these schemes, depositors get fixed interest on their money. Collections from all small savings schemes are deposited in the National Small Savings Fund (NSSF). Small savings schemes have emerged as a source of financing government deficit.