The Government of India has lowered the interest rates on Small Savings Schemes by up to 1.4% for the first quarter of FY 2020-21.
Now the rate of interest for most of the schemes will be below 7%.
The move follows the recent repo rate cut by Reserve Bank of India to support the economy and industry from the pandemic caused by COVID-19.
The rate cut will earn you a lower interest income for the first quarter starting 1st April 2020. Let us see how this will impact your investments as a whole.
The PPF rate has been lowered by 0.8%. The new PPF interest rate will be 7.1% from the earlier rate of 7.9%.
The revision will mean that you will receive a lower tax-free income for the first quarter of 2020-21.
The impact of rate revision will be more for the people above 60 years of age and holding their money under the Senior Citizen Savings Scheme.
The rate under the scheme has been revised from 8.6% to 7.4%, a reduction of 120 basis points (bps).
The Kisan Vikas Patra (KVP) segment had the least amount of rate reduction among other schemes. The interest rate was slashed only by 70 bps.
The new rate of interest on your KVP for the first quarter of FY 2020-21 will be 6.9% as against the present interest rate of 7.6%.
The government reduced 1.1% on the National Savings Scheme from the existing rate of 7.9%. The effective new rates stand at 6.8%.
As an investment option, the NSC scheme will now be almost at par with the 5 Year Term deposit scheme that has a 6.7% interest rate.
In the last five years, the rate of interest on the Sukanya Samriddhi Scheme has come down drastically from 9.1% (at launch in January 2015).
The scheme is slowly losing its position as a favorite investment option.
The rate of interest for the Sukanya Samriddhi account was slashed by 80 basis points. The present rate of interest will be 7.6% for the scheme.
Now you will earn a percent less on your MIS investment. The interest rate has been lowered from 7.6 percent to 6.6 percent.
The revised interest rate on MIS would make it an even lesser attractive investment option.
The other notable revision on Small Savings Schemes are under:
|Scheme||Present Rate of Interest||The revised Interest rate|
applicable for the
1st quarter of 2020-21
|5 Year Term Deposit||7.7%||6.7%|
|5 Year Recurring Deposit||7.2%||5.8%|
|3 Year Time Deposit||6.9%||5.5%|
|2 Year Time Deposit||6.9%||5.5%|
|1 Year Time Deposit||6.9%||5.5%|
The direct impact of the rate cut will be lower interest earnings on the investments made under the Small Savings Scheme for the first quarter of FY 2020-21.
The indirect impact will be that the rate cut will render most of the Small Savings Scheme to be less lucrative as an investment option for tax/investment planning.