The Finance Ministry may consider lowering interest rates on small savings schemes in the next financial year (FY26). Recently, the RBI has also reduced the Repo Rate from 6.5% to 6.25%.
On February 7, 2025, the RBI’s Monetary Policy Committee (MPC) lowered the repo rate by 25 basis points, bringing it down from 6.5% to 6.25%. This was the first rate cut in nearly five years.
A senior government official explained that this move would increase liquidity in the banking system, which could lead to lower fixed deposit interest rates. He said that small savings schemes currently offer some of the highest returns for retail investors.
Possible Small Savings Rate Reduction
The official pointed out that the Mahila Samman Savings Certificate, which offers 7.5% interest, will see its first batch of repayments due on March 31, 2025. With repayments starting next year, the government will need to manage cash flows carefully, making a review of small savings interest rates likely.
The Finance Ministry is expected to announce revised small savings rates before April 1, 2025.
Small Savings Interest Rates Remained Unchanged for Four Quarters
Despite fluctuations in market yields, the government has kept small savings rates unchanged for four consecutive quarters. On December 31, 2024, the Finance Ministry decided to maintain existing rates for the January-March 2025 quarter.
How Small Savings Interest Rates Are Determined
Small savings interest rates are linked to market yields on government securities, with a spread of 0-100 basis points over comparable government bonds. However, in recent years, this link has weakened, and the government has exercised more discretion in setting rates.
Current Interest Rates on Small Savings Schemes
As of now, savers earn the following interest rates on key small savings schemes:
- Sukanya Samriddhi Yojana – 8.2%
- Public Provident Fund (PPF) – 7.1%
- Three-year Term Deposit – 7.1%
- Post Office Savings Deposits – 4%
- Kisan Vikas Patra (KVP) – 7.5% (Matures in 115 months)
- National Savings Certificate (NSC) – 7.7%
- Monthly Income Scheme – 7.4%
- Senior Citizen Savings Scheme – 8.2%
Government’s Borrowing from Small Savings to Decline in FY26
In the 2025-26 Budget, the government has estimated borrowing ₹3.43 lakh crore from the National Small Savings Fund (NSSF). This is lower than the revised borrowing target of ₹4.12 lakh crore for FY25.
What to Expect?
With the RBI reducing repo rates and the government considering a review of small savings rates, investors should prepare for possible interest rate cuts. The final decision will be announced before April 1, 2025.
-
-
-
-
-
-
