How is interest calculated for PPF, Sukanya Samriddhi yojana?
The interest rates of small savings schemes are linked to market yields of Government Securities in the secondary market. There are set formulae for mark-ups over the previous three months’ average yield of relevant G-Secs of comparable maturity. The central government reviews the interest rates of small savings schemes every quarter based on the G-Secs yields of the previous three months. This is in line with the recommendations of the Shyamala Gopinath Committee, 2011 to ensure that the interest rates of small savings schemes are market-linked.
Will PPF, Sukanya Samriddhi Yojana interest rates go up in April 2023?
As per the formula notified by the Finance Ministry in 2016, PPF has a spread of 25 basis points, Sukanya Samriddhi Yojana has a spread of 75 basis points and the Senior Citizens Savings Scheme has the biggest spread of 100 basis points. The benchmark 10-year bond yield has averaged 7.37% from December to February 2022, according to data from investing.com.
Also Read: PPF scheme: Here are 10 things you should know
Going by the formula, the interest rate of PPF will be 25 basis points higher than the average 10-year G-sec yield of the corresponding maturity. At present, PPF earns an interest rate of 7.1 per cent. However, going by the formula the interest rate of the Public Provident Fund could climb up to 7.6 per cent in the upcoming quarter.
Similarly, the interest rate of the Sukanya Samriddhi Scheme could jump up to 8.1 per cent soon from the existing 7.6 per cent interest rate. (Average three-month yield of 10-year G-Secs+75 basis points).
Moreover, the government has hiked the interest rates of a few small savings schemes between 20 basis points and 110 basis points for the March quarter, of 2023. However, the interest rates of PPF and Sukanya Samriddhi Yojana have not been revised. “Despite a consistent increase in policy rates, PPF rates have not seen a corresponding uptick. The rates were last reduced almost three years ago,” said Anand Dalmia, Co-founder & CBO of Fisdom, a wealth tech platform. “The interest rates on select small savings schemes were last revised for Q4 FY 2022-23. As per the union government, the current interest rates on many of the Small Savings Schemes are comparable to the fixed deposit schemes offered by public and private banks. However, considering the high inflation and interest rates, the small savings rates are still below desired levels. So a further upward revision in the interest rates will be a very welcome move to the depositors,” said Adhil Shetty, CEO, of BankBazaar.com.
It must be mentioned that the central government does not always adjust the interest rates of small savings schemes as per the recommended formula. There is often a substantial lag.
The interest rates for the small savings schemes are due for review on March 31, 2023. The rates will be applicable for the April-June quarter of FY2023-24. It remains to be seen whether the government will follow the recommendations of Gopinath to determine the interest rates this time.