Small Savings Schemes Interest Rate: After EPF, now will the scissors run on the interest of small savings like PPF, SSY?

The Employees’ Provident Fund Organization (EPFO) has reduced the interest rate on Employees’ Provident Fund (EPF) to a 40-year low. Now the interest rate on EPF (Employees Provident Fund) has become 8.1%. This 0.4 per cent cut in EPF interest rate comes at a time when EPFO ​​is investing 15% incremental PF inflows in equities and the stock markets have performed well. Union Finance Minister Nirmala Sitharaman defended the cut in PF interest rates by saying that this rate is determined by today’s realities.

This statement of the Finance Minister can be an indication that the rates of Small Savings Schemes can also be cut. That is, it may be that along with PF, from April 1, the interest rates of other small savings schemes including PPF will also be cut. Small Savings Scheme rates are linked to government bond yields of similar maturity and are reset every quarter.

Assembly elections of 5 states are over
Bond yields declined steadily during 2020-21, but despite this, political compulsions prevented the government from cutting rates on small savings schemes. A massive 60-70 basis points cut was made in April 2021 but then this cut was hastily withdrawn after a public outcry. Now that the assembly elections of 5 states are over, the government can take some tough decisions, which it had postponed till now. These decisions may also include reduction in the rates of small savings schemes.

Small Savings Scheme interest rates have come down continuously in 10-12 years
There has been a steady decline in the rates of small savings over the last 10-12 years. Talking about PPF, in 2014 the interest rate of PPF was 8.7% per annum. But at the moment it has come down to 7.1% and it is likely to decrease further in the coming months.

Senior citizens will be most affected if there is a cut
Although people from all walks of life deposit money in small savings schemes, young and middle-aged investors may be able to deal with it if the rates are cut. But for senior citizens it can be a big blow. This is because senior citizens are completely dependent on income from investments. For them, investment is not a means of increasing wealth but a source of income.

Meanwhile, it is also important to pay attention to inflation. Inflation is rising, in such a situation, the cut in the interest rates of small savings will break the back of the common man further. Retail inflation touched an eight-month high of 6.1% in February, while wholesale price inflation is in double digits. The Ukraine crisis has propelled global crude oil prices and some analysts fear inflation could spiral out of control in the coming months.

How much is the interest on Small Savings Scheme now?
Post Office RD: 5.8 percent per annum
Post Office FDs: From 5.5% to 6.7% p.a. on maturity period from 1 year to 5 years
Post Office Monthly Income Scheme: 6.6 percent per annum
Post Office Senior Citizen Savings Scheme: 7.4 percent per annum
PPF: 7.1 percent per annum
Sukanya Samriddhi Account: 7.6 percent per annum
NSC: 6.8 percent per annum
Kisan Vikas Patra: 6.9 percent annually

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