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Small Savings Schemes


Amid rising yields on government securities, the Finance Ministry recently hiked the interest rates for some small savings schemes by 20-110 basis points for the January-March quarter. While the hike will serve as protection against high inflation and interest rates, the small savings rates are still below desired levels.


GS III- Indian Economy

Dimensions of the Article:

  1. Rising interest rate cycle
  2. About Small Saving Schemes/Instruments
  3. What are the different saving schemes?

Rising interest rate cycle

  • Coming amid a higher inflation rate and a rising interest rate cycle, the hike in small savings rate is seen as necessary to protect savers, especially senior citizens.
  • The view within the ministry is to balance the interests of senior citizens and persons saving in instruments without tax benefits, along with keeping the interest rate for small savings in check, as it essentially translates into a higher interest cost for the government when it borrows against the National Small Saving Fund.

About Small Saving Schemes/Instruments

  • They consist of 12 instruments and are the main source of household savings in India.
  • Depositors receive a guaranteed interest rate on their funds.
  • They are popular as they provide returns higher than bank fixed deposits, sovereign guarantee and tax benefits.
  • The National Small Savings Fund receives payments from all small savings instruments (NSSF).
  • Small savings have become a crucial source of funding the government deficit, particularly when the Covid-19 outbreak caused the deficit to inflate and further borrowing became necessary.
Determination of Rates:
  • Interest rates on small savings schemes are reset on a quarterly basis, in line with the movement in benchmark government bonds of similar maturity. The rates are reviewed periodically by the Ministry of Finance.
  • The Shyamala Gopinath panel (2010) constituted on the Small Saving Scheme had suggested a market-linked interest rate system for small savings schemes.

What are the different saving schemes?

Small savings instruments can be classified under three heads:

  • Postal Deposits (comprising savings account, recurring deposits, time deposits of varying maturities and monthly income scheme).
  • Savings Certificates: National Small Savings Certificate (NSC) and Kisan Vikas Patra (KVP).
  • Social Security Schemes: Sukanya Samriddhi Scheme, Public Provident Fund (PPF) and Senior Citizens‘ Savings Scheme (SCSS).

-Source: Indian Express

March 2024