The government on March 31, 2023 increased the rate of interest across small savings schemes except Post Office savings account and Public Provident Fund (PPF).
The rate of interest will be valid for the first quarter of financial year 2024, i.e., April-June 2023.
Small Saving Schemes
The rate of interest for the National Savings Certificates (NSCs) have been increased by 70 basis points (bps) to 7.7 per cent for the first quarter of Financial Year 2024, i.e., April-June 2023.
The NSC is a fixed-income scheme backed by the Government of India. Tax savings are available for NSC investments up to Rs 1.5 lakh annually.
The rate of interest on Senior Citizen Savings Scheme (SCSS) has been increased by 20 basis points to 8.2 per cent and on Sukanya Samriddhi Yojana (SSY) by 40 basis points to 8 per cent.
Sukanya Samriddhi Yojana aims to provide a fund for the girl child’s future education. Investors can invest from Rs. 250 up to Rs 1.5 lakh every fiscal year.
SCSS only allows investments up to Rs 30 lakh.
The government has also increased the rate of interest on the Kisan Vikas Patra (KVP) by 30 bps to 7.5 per cent, and also reduced its maturity period by 5 months to 115 months. KVP encourages long-term savings, and are available in denominations of Rs 1,000, Rs 5,000, Rs 10,000, and Rs 50,000. There is no maximum investment amount in this scheme.
In terms of interest rates, these schemes are much better than bank FDs. As banks offer deposits ranging from seven days to 10 years, bank FDs are also more liquid.
However, only small finance banks offer comparable rates to small savings schemes.
Interest Rates Offered By Small Finance Banks
According to data from BankBazaar, banks offering the highest interest rates for deposits under Rs 2 crore include, Unity Small Finance Bank, which offers 9 per cent for a tenure of 1,001 days, and Suryoday Small Finance Bank, which offers 8.51 per cent for a tenure of 999 days.
To general depositors, Ujjivan Small Finance Bank offers 8.25 per cent rate of interest for 560 days, and Fincare Small Finance Bank offers 8.41 per cent for 1,000 days.
Senior citizens receive a nominal premium over these rates.
It should, however, be noted that FDs from small finance banks involve credit risk. In comparison to larger banks, small finance banks have a smaller deposit base and a higher default risk. As such, it’s important to check the credit rating of the bank before investing.
Senior citizens receive a nominal premium over these rates. But it should be noted that FDs from small finance banks involve credit risk, which is typically 25 basis point higher. In comparison to larger banks, small finance banks have a smaller deposit base and a higher default risk. It’s, therefore, important to check the credit rating of the bank before investing.
As the saying goes, never put all your eggs in one basket. So, it’s wiser to diversify your savings into different instruments and institutions.