The government of India recently announced an increase in interest rates on certain Small Savings Schemes. This adjustment will apply to the 2-year and 3-year Time Deposits, Senior Citizens Savings Scheme, and Kisan Vikas Patra for the time period October-December 2022. Following this announcement, let’s delve into the core components and functions of the Small Savings Schemes.
Understanding Small Savings Schemes
Small Savings Schemes is a group of savings instruments orchestrated by the central government. Its aim is to encourage regular saving habits among citizens regardless of their age. The schemes are widely acknowledged due to their compelling returns compared to bank fixed deposits. Additionally, they offer a sovereign guarantee and tax benefits.
All deposits received under various small savings schemes merge into the National Small Savings Fund. The central government uses this fund to finance its fiscal deficit.
Classification of Small Savings Schemes
There are multiple categories within Small Savings Schemes. Post office deposits include savings deposit, recurring deposit, and time deposits with 1, 2, 3, and 5 year maturities, along with the Monthly Income Account.
Savings certificates feature two primary types: the National Savings Certificate where earned interest is automatically reinvested yearly back into the scheme; and Kisan Vikas Patra, accessible to everyone and doubling the one-time investment at the end of 124 months, indicating a return of 6.9% compounded annually.
Social Security Schemes
Several social security schemes come under Small Savings Schemes, designed to provide financial stability. Prominent ones include the Public Provident Fund (PPF), aimed at offering a secure post-retirement life.
Sukanya Samriddhi Account is another vital scheme, launched in 2015 under the Beti Bachao Beti Padhao initiative. This scheme is designed specifically for a girl child under the age of 10 years, promising a return of 7.6% per annum. It also provides tax benefits under Section 80C of the Income Tax Act.
The Senior Citizens Savings Scheme is another option available to anyone over the age of 60, providing them with a secure savings platform.
Determination of Rates
The interest rates on small savings schemes are adjusted quarterly, aligning with the movement in benchmark government bonds of similar maturity. The rates undergo a periodic review by the Ministry of Finance. Recommendations stemming from the Shyamala Gopinath panel in 2010 have also suggested that a market-linked interest rate system would be ideal for small savings schemes.
With deeper knowledge about these schemes, citizens can make informed decisions on how to best utilize them to achieve their financial goals and security.