FinMin may cut rates on small savings schemes in FY26, says govt source

Small savings schemes are majorly operated by post offices and banks.

Following the Reserve Bank of India's (RBI) decision to cut the benchmark policy repo rate by 25 basis points, the finance ministry may consider lowering interest rates for small savings schemes in the next financial year, a government official said.

The RBI's Monetary Policy Committee (MPC) on February 7 lowered interest rates by 25 basis points to 6.25 percent from 6.5 percent after almost five years.

“There will be more liquidity. You should expect a reduction in your bank fixed deposit. So far, small savings offers the highest rates for small investors. Mahila Samman interest rate is 7.5 percent. On 31st of March repayment for the two years would be due for Mahila Samman. Next year, we have to start paying back the people who have deposited. If they have deposited in the first year, their repayment becomes due next year,” a senior government official said, hinting at a possible review of small savings rates.

The small savings rate will be reviewed, and the new rate will be announced before April 1, 2025.

The Finance Ministry on December 31 left the interest rates on various small savings schemes unchanged for the quarter beginning January 1, 2025. This marked the fourth consecutive quarter that these rates remained the same.

The central government notifies the interest rates on small savings schemes, majorly operated by post offices and banks, every quarter.

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, when market yields on government securities fall, interest rates on small savings schemes are typically lowered.

However, the link between interest rates on small savings and yields on government securities has weakened over a period of time.

Currently, savers earn the following interest rates on the some of the key schemes--

•Sukanya Samriddhi Scheme -- 8.2 percent,
•Three-year term deposit -- 7.1 per cent
•Public Provident Fund (PPF) 7.1 percent
•Post office savings deposits schemes -- 4 percent
•Kisan Vikas Patra -- 7.5 percent (Will mature in 115 months)
•National Savings Certificate (NSC) -- 7.7 per cent.
•Monthly Income Scheme -- 7.4 percent
•Senior Citizen Savings Scheme -- 8.2 percent

In the Budget for 2025-26, the Centre has estimated its borrowings from NSSF (National Small Saving Fund) at Rs 3.43 lakh crore for the next fiscal. This is significantly lower than the revised aim of Rs 4.12 lakh crore for 2024-25.