Govt slashes interest rates of Small Saving Schemes

Govt slashes interest rate on PPF, other small savings schemes: What it means for you 

The government on March 31, 2020 announced a steep cut in the interest rates on small savings schemes for the first quarter (April to June) of FY 2020-21. Interest rates on various small savings schemes have been cut by between 70 basis points and 140 basis points (100 basis points = 1 per cent).

For instance, interest rates on Public Provident Fund (PPF) and Sukanya Samriddhi Yojana have been cut by 0.8% or 80 bps, each. Post office time deposits (of certain tenors) have seen the sharpest cut of 1.4 per cent or 140 bps. After the latest reduction, PPF will earn 7.1 per cent (down from 7.9 per cent), Sukanya Samriddhi Yojana 7.6 per cent (8.4 per cent), and time deposits will earn 5.5-6.7 per cent for the April-June quarter.

Here is a look how much each small savings scheme will earn for the quarter ending June 30, 2020.

What it Means To You-

This is bad news for those investing in these small savings schemes, especially senior citizens who are invested in fixed income schemes. 

Fixed-income investors, which include a large number of senior citizens, will now earn a lower rate of interest. That the development comes during the novel coronavirus outbreak makes matters worse for senior citizens who will see a drop in their regular income. 

Some of these smalls savings schemes are widely availed by people across the country and they now may have to revisit their entire investment plan as they will now fetch much lower returns. 

In light of the recent interest rate cuts, experts have recommended investors in small savings schemes to diversify their portfolio and look at hybrid or balanced funds, which offer more than one type of investment security.