The government has increased the interest rates of two small savings schemes for January-March 2024 by 10-20 basis points. As per a notification by the finance ministry, the rate of interest on the three-year time deposit has been increased by 10 basis points to 7.1% and that of Sukanya Samriddhi Account Scheme by 20 basis points to 8.2% for the three months to March 2024.
All the other small savings schemes will continue to offer the same rate of interest as they did in the three months to December this year.
The interest rates of small savings schemes are set by the government every quarter and are linked to market yields on government securities with a spread ranging between 25 to 100 basis points over the yield of the securities of comparable maturities.
Last time, for the October to December quarter, the government raised the interest rate of only five-year recurring deposits by 20 basis points to 6.7% and kept the rates unchanged for all other schemes.
The interest rate of Public Provident Fund (PPF), which was reduced from 7.9% in Q4FY20 to 7.1% in Q1FY21 has been kept unchanged since then. According to the formula notified by the Finance Ministry, PPF has a spread of 25 basis points over the benchmarked yield of preceding three months. Investors get tax benefit on investing under Section 80C of the Income Tax Act, interest earned is tax free and the withdrawal of the maturity amount is also tax-free.
Since May 2022, the Reserve Bank of India increased the repo rate from 4% to 6.5% till February this year and has since paused. Banks have hiked their deposit rates across tenures and investors are earning positive returns after a prolonged period of low interest rates. For instance, State Bank of India is offering
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