FD Interest Rates Go Up, But Small Savings Scheme Returns Remain Unchanged. Here’s Why

Top banks such as State Bank of India (SBI), HDFC Bank and Punjab National Bank have raised their interest rates on fixed deposit or FD. That means better return on investment (RoI) for the customer depositing money in a bank FD. Interest rates on government-run small savings schemes, however, remain the same. Interest rates for small savings schemes – such as Public Provident Fund (PPF) and Senior Citizen Savings Scheme (SCSS) – for the quarter ending September 2018 have been kept unchanged. In other words, the return on your investment in any of the small savings scheme is not moving higher. NDTV here analyses some of the factors that impact small savings schemes interest rates:  But first, what are small savings schemes?  Small saving schemes are broadly categorised into three categories: 1) postal deposits, which include savings account, recurring and fixed deposits of varying maturities, and monthly income scheme (MIS); 2) savings certificates, which include national savings certificate (NSC) and Kisan Vikas Patra (KVP); and 3) social security schemes such as PPF and SCSS.  Usually, small savings schemes offer a good alternative to bank savings. The return on small savings schemes tends to be higher than that on bank deposits of comparable maturities.  These schemes provide an alternative avenue to savings in banks.  The return, or the interest rate, on small savings schemes is decided by the government for every quarter on the basis of its bond yields. In the current scenario, bond yields are rising, which is why lenders like SBI and HDFC Bank have hiked their FD interest rates.  SBI currently pays an interest rate of 6.85 per cent on an FD of five-year maturity; investment in PPF or NSC fetches an annual return of 7.6 per cent; the interest rate on KVP is fixed at 7.3 per cent, whereas SCSS yields a return of 8.3 per cent.  However, interest rates on most of these small savings schemes have not changed for three consecutive quarters.