After interest rates on small savings had been flat for nine straight quarters, the Treasury had raised interest rates on some of the small savings by 10 to 30 basis points for October-December and did so inconsistently across all schemes. Interest rates on 2- and 3-year term deposits, senior savings plan and Kisan Vikas Patra were raised slightly, while rates on other programs were flat in the previous quarter. The changes came amid higher inflation and a rising interest rate cycle. Since April, the Reserve Bank of India has raised interest rates by 225 basis points. In its policy report published on September 30, the RBI found that with government bond yields rising, the revised small savings rates were 44-77 basis points below the rates implied by the formula. The view within the Department on rate hikes has been to reconcile the interests of seniors, people saving in investments without tax benefits, and to keep the interest rate on small savings in check, essentially resulting in higher interest costs for the state when this is the case borrowing against the National Small Saving Fund. Interest rates for small savings plans are reset quarterly in line with the performance of benchmark government bonds of similar maturities.

Typically, small savings rates are linked to benchmark Treasury yields, but despite the movement in G-sec yields, interest rate changes have not exactly matched yield movements over the past two years.

The reference period for small savings rates for the January-March quarter is September-November, when the five-year Treasury yield rose about 15 basis points. Among the most popular fixed income products, the National Savings Certificate will return 7.0 percent from 6.8 percent previously.

Interest rates on the Public Provident Fund (PPF) remain unchanged at 7.1 percent, while the interest rate on the girls’ savings program, Sukanya Samriddhi Yojana, also remains constant at 7.6 percent. The interest rate for savings deposits remains 4 percent per year. EPF continues to have a higher interest rate for its subscribers, although the interest rate for FY22 was reduced to 8.1 percent – the lowest in four decades.

Interest rates were previously revised for the first quarter of 2021-22 (April-March) and cut sharply by 40-110 basis points, but the decision was later reversed, with the finance minister saying the “orders issued oversight are being withdrawn”. The cut in interest rates and subsequent withdrawal came ahead of West Bengal’s general election. Previously, interest rates were revised two years ago for the first quarter of 2020-21.