Rates on all small savings instruments reduced

Rates on all small savings instruments reduced

Part of: GS Prelims and GS – III – Economy 

In news

• The government has sharply reduced the rates on all small savings instruments for the first quarter of 2021-22.

Key takeaways 

• Rate of return on the Public Provident Fund: Down from 7.1% to 6.4%  
• Quarterly interest rate paid on one-year term deposits: Down from 5.5% to 4.4% 
• Rate of return on the Senior Citizen Savings’ Scheme: Down from 7.4% to 6.5%, 
• Sukanya Samriddhi Account Scheme’s return: Down from 7.6% to 6.9%.
• Interest rate paid on National Savings Certificate: from 6.8% to 5.9% 
• Kisan Vikas Patra: Down from 6.9% to 6.2%.
• Kisan Vikas Patra, which used to mature in 124 months, will now mature in 138 months.
• Savings deposits: Down from 4% to 3.5%. 
• The highest returns at this point is the Sukanya Samriddhi Account Scheme, followed by the Senior Citizens’ Savings Schemes and the Public Provident Fund.

What does it mean? 

• While the government resets the interest rate on small savings instruments every quarter, this round of rate cuts assumes significance as the government is keen to lower interest rates to make it easier to execute its borrowing plans for the year and increase growth.
• The government plans to borrow ₹12.05 lakh crore in 2021-22, on the back of a record gross borrowing of ₹13.71 lakh crore in 2020-21.
• High small savings rates have been cited by the central bank as a major barrier in ensuring policy rate cuts get transmitted into the banking system.