Small savings schemes' interest rates for April-June may see third straight hike

Interest rates on small savings schemes may be increased for the third quarter in a row in April-June 2023 – at least if the government decides to follow its own rules.

These interest rates for the first quarter of 2023-24 are scheduled to be released later today on March 31. And while they were left unchanged for nine straight quarters, the last six months have seen them being increased by 30-140 basis points.

One basis point is one-hundredth of a percentage point.

Small savings interest rates, while set by the government, are linked to market yields on government securities at a spread of 0-100 basis points over the yield of these securities of comparable maturities. As such, with market yields on government securities rising during the reference period, interest rates on small savings schemes should also rise.

In December 2022-February 2023, which is the reference period for small savings interest rates for April-June 2023, yield on five-year government bonds rose by around 30 basis points, while 10-year bond yields rose by just under 20 basis points.

However, the government has not always altered these interest rates as dictated by the agreed formula, with the classic example being the nine quarters ended July-September 2022.