Expectations were high, and perhaps even true, that the finance ministry would announce a hike in the interest rates for the Small Savings Scheme (SSS). With the central bank eventually raising the repo rate to 4.9%, and yields on G-secs or government securities also rising on inflation and other concerns, SSS rates were also expected to follow suit.
But the rates of these schemes, which are reviewed every quarter, were once again left unchanged for the July-September, 2022 quarter. These rate revisions were announced on June 30.
Small savings schemes include many popular schemes such as Post Office Time Deposit, Public Provident Fund (PPF), Senior Citizen Savings Scheme (SCSS) and National Savings Certificate (NSC), among others.
Deposit rates are rising
Ever since the Reserve Bank of India increased the repo rate, many banks and NBFCs have increased the deposit rate. Many of them have announced more than one hike during the last two months.
BankBazaar data shows that several public sector banks and private sector banks have increased interest rates by 10-75 bps and 20-100 bps, respectively, on deposits of less than one year between April 1 and June 24. is of. Several public and private sector banks have increased rates by 15-35 bps and 10-75 bps for deposits of 1 to 2 years and 15-35 bps and 20-50 bps respectively for deposits of 2 to 3 years. increased.
NBFCs like Bajaj Finance, Shriram Transport Finance and HDFC have also hiked their deposit rates in the recent past. For example, Bajaj Finance has hiked interest rates thrice since May.
Bond yields are also heading north, fueled by rising inflation concerns. The benchmark 10-year G-Sec yield has risen more than 100 bps to nearly 7.4% year-on-year.
On the other hand, the interest rates on SSS have remained stable since the last cut on March 31, 2020. 5.5% is offered on 1-, 2- and 3-year post office time deposits and 6.7% on 5-year fixed deposits. SCSS, which comes with a lock-in of five years, offers 7.4%.
As bank and NBFC deposit rates move up, SSS may start to look less attractive on returns. However, these schemes may still interest investors as the tax benefits and high level of security enjoyed by some of them (like PPF and SCSS) is due to their sovereign backing.
then and Now
Small savings schemes have been an attractive investment option in the past when interest rates were falling. This was because, despite the SSS being market-linked (linked to the same-period Government-Sec yields) since April 2016, the repo rate cuts by the RBI and the fall in G-Sec yields during that period did not reduce them. went. Duration.
Today, with interest rate fluctuations starting, it is likely that the revision in SSS rates may not keep pace with the rising rates. They can go up, but possibly, only with a gap.