PPF hits 46 year low of 6.4% as govt cuts interest rates of small savings schemes

 The year 2020 has been especially abysmal for fixed income investors. Looks like it will be the same in 2021 as well. That is because the government has announced a cut in interest rates of small savings schemes. That is right, the government has cut interest rates on small savings schemes after keeping them unchanged for the past three quarters. As per a finance ministry circular, dated March 31, 2021, interest rates on small savings schemes have been cut by massively between 40 -110 basis basis points (100 basis points/bps = 1%) for the first quarter of the financial year 2021-22. The PPF interest rate below 7% would be the first time since 1974, a 46 year low.

With effect from April 1, 2021, post office saving schemes will fetch interest rates as follows: Public Provident Fund (PPF) - 6.4 per cent down from 7.1 per cent earlier, National Savings Certificate (NSC) - 5.9 per cent, down from 6.8 per cent earlier, Sukanya Samriddhi Yojana (SSY) - 6.9 per cent, down from 7.6 per cent earlier. Post office time deposit rates across tenures have been reduced by 0.40- 1.1% and will earn in the range of 4.4- 5.3%.

This is the second time the government has cut interest rates on small savings schemes in the past one year. In the April-June quarter of 2020-21, the government had slashed rates of small savings schemes by 70-140 bps. (100 bps= 1 per cent).

With the latest cut, interest rates on small savings schemes have been reduced by a total of 110-250 bps during the current financial year.

Here is a look at the interest rates on various small savings schemes for the fourth quarter of FY 2020-21.

Instrument	Interest rate (%) from Jan 1, 2020	Interest rate (%) from April 1 to June 30, 2021	Change in Interest rate (%)
Savings deposit	4	3.5	0.5
1 year Time Deposit	5.5	4.4	1.1
2 year Time Deposit	5.5	5.0	0.5
3 year Time Deposit	5.5	5.1	0.4
5 year Time Deposit	6.7	5.8	0.9
5-year Recurring Deposit	5.8	5.3	0.5
5-year Senior Citizen Savings Scheme	7.4	6.5	0.9
5-year Monthly Income Account	6.6	5.7	0.9
5-year National Savings Certificate	6.8	5.9	0.9
Public Provident Fund	7.1	6.4	0.7
Kisan Vikas Patra	6.9 (will mature in 124 months)	6.2	0.7
Sukanya Samriddhi Yojana	7.6	6.9	0.7