Small savings: Q3 PPF, NSC rates hiked to 8%, for KVPs to 7.7%

The government on Thursday announced higher interest rates on several small savings schemes, including the Public Provident Fund (PPF), National Savings Certificates (NSC) and Kisan Vikas Patra (KVP), for the third quarter of the 2018-19 financial year.

The revised rates will apply from October 1 to December 31, 2018, according to a notification issued by the Finance Ministry.

Under the new structure, interest rates on time deposits with maturities of less than five years have been increased by 0.3 percentage point, while rates for other maturities have been raised by 0.4 percentage point.

The PPF and NSC interest rates have been increased to 8 per cent, compared with 7.6 per cent previously. The Kisan Vikas Patra will now offer 7.7 per cent, up from 7.3 per cent.

The five-year Senior Citizens' Savings Scheme will carry an interest rate of 8.7 per cent, while the Sukanya Samriddhi Yojana, designed to encourage long-term savings for the education and future needs of the girl child, will offer 8.5 per cent.

However, the government has left the interest rate on savings deposits unchanged at 4 per cent, with interest compounded annually.

The increase is significant for millions of small savers who rely on government-backed schemes for relatively stable and predictable returns. Instruments such as PPF and NSCs are particularly popular among households looking for long-term savings options, while schemes such as the Senior Citizens' Savings Scheme cater specifically to retirees.

The revised rates also make several small savings instruments more attractive compared with their earlier returns. The changes came after a period of rising interest rates in the broader financial system, with the government linking the latest revision to the increase in key policy rates announced by the Reserve Bank of India.

Higher small-savings rates can benefit depositors by improving returns, although they can also influence borrowing costs and the overall interest-rate environment because government small-savings rates form an important part of the country's household savings ecosystem.

The new rates will remain applicable throughout the October-December quarter, after which the government will review the rates for the following quarter.