Interest Rates on Some of the Small Savings Schemes

Why in the News?

Recently, the government hiked interest rates on some of the small savings schemes.

Key Points:

• Interest rates have been revised upwards for Kishan Vikas Patra (KVP), senior citizens savings scheme, monthly income account scheme, and time deposits for two and three years.

About Small Saving Scheme:

• • These are savings instruments managed by the government to encourage citizens to save regularly. 
  • All deposits received under various small savings schemes are pooled in the National Small Savings Fund. 
  • The money in the fund is used by the central government to finance its fiscal deficit.

• Benefit:

• • • Provide returns that are generally higher than bank fixed deposits.
    • Sovereign guarantee and tax benefits.

• Rates are determined by:

• • On a quarterly basis, interest rates on small savings plans are adjusted to reflect changes in comparable-maturity benchmark treasury bonds. 
  • The Ministry of Finance conducts frequent reviews of the rates.
  • A market-linked interest rate structure for small savings schemes was recommended by the Shyamala Gopinath panel (2010) on the subject.