Govt raises interest rate on one small savings scheme by 20 bps for Oct-Dec

Interest rates on small savings schemes, 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.

The central government has raised the rate of interest on one small savings scheme for October-December by 20 basis points, making it the fifth quarter in a row that rates on these instruments have been increased.

As per a notification by the finance ministry on September 29, the rate of interest on the five-year recurring deposit has been increased to 6.7 percent from 6.5 percent. All other small savings schemes will continue to offer the same rate of interest as they did in July-September.

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 rise or fall during the reference period, interest rates on small savings schemes should move in the same direction as per the government's own formula.

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

While the 10-year bond yield was up around 18 basis points in June-August, the yield on the government's 364-day Treasury bill was 14 basis points higher over the same period.

The finance ministry started raising small savings interests in October-December 2022 after leaving them unchanged for nine consecutive quarters.