Govt leaves interest rates on small savings schemes unchanged for April-June

The Union government on March 8 left interest rates on small savings schemes unchanged for April-June, making it the first time in seven quarters that rates on these instruments have not been increased.

The finance ministry started raising small savings interest rates in October-December 2022 after leaving them unchanged for nine consecutive quarters.

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"The rates of interest on various Small Savings Schemes for the first quarter of FY 2024-25 starting from 1st April, 2024 and ending on 30th June, 2024 shall remain unchanged from those notified for the fourth quarter (1st January, 2024 to 31st March, 2024) of FY 2023-24. This has the approval of the competent authority," a government notification said.

Small savings interest rates, while set by the government, are linked to market yields on government securities at a spread of 0-100 basis points over the yield of these securities of comparable maturities. As such, when market yields on government securities fall, interest rates on small savings schemes should also be decreased.

However, the small savings interest rates have been left unchanged for the second quarter of 2024 despite a fall in government bond yields. In December 2023-February 2024 - which is the reference period for small savings interest rates for April-June 2024 - yields on five- and 10-year government bonds fell by around 20 basis points. Yield on the government's 364-day Treasury bill also edged lower by a marginal 3 basis points.

One basis point is a hundredth of a percentage point.