As was widely expected, the government has reduced the interest rates on small saving schemes such as PPF, NSC, KVP, SCSS, amongst others, for the quarter April to June 2020. The interest rate on the PO savings schemes is revised by the government at the beginning of every quarter of the financial year based on the yields on government bonds. Earlier, for the fourth quarter of 2019-20, i.e. January to March 2020, the rates were kept unchanged.
The interest rate on PPF has been reduced from 7.9 per cent to 7.1 per cent per annum, a reduction of 80 basis points. For the Senior Citizen Savings Scheme, the interest rate has been cut from 8.6 per cent per annum to 7.4 per cent per annum. In the case of 1-year time deposit, the reduction is 1.4 per cent as the rate has been cut from 6.9 per cent to 5.5 per cent.
The RBI had recently reduced the repo rate by 75 basis points, thus giving a clear signal for the interest rates to move down. Subsequently, the SBI had announced a revision in the SBI FD rates by lowering the interest rate across different FD scheme tenure. With PO interest rate lower than before, the FD rates in banks are also expected to fall further down.
The post office small savings investments such as National Savings Certificates (NSC), KVP, Time-deposits, Public Provident Fund (PPF), Senior Citizens Savings Scheme (SCSS), Sukanya Samriddhi Yojana (SSY) etc. are hugely popular amongst the investors looking for safe and fixed returns.
The interest rates of all small savings schemes do not change every quarter. For the investor who invests in NSC, KVP, Time deposits, Senior Citizens Savings Scheme (SCSS), the rate of interest remains fixed until maturity. However, investors of PPF and Sukanya Samriddhi Yojana (SSY) sees a revision in the rate as and when the government revises the rate at each quarter of the financial years.
Considering the current rate of interest on bank FD, the post office schemes may still appear attractive. Before investing, make sure about the tax liability of the interest that you will earn on PO schemes as some of them may bear taxable interest. Also, as most of them have a long duration, make sure you have liquid funds at your disposal before parking for long term. Invest in them by linking to your long term needs and keeping asset allocation across equity and debt into consideration. Importantly, the post office schemes carry a sovereign guarantee on the entire amount invested thus are considered highly safe.