Govt hikes National Savings Scheme, Provident Fund, deposits scheme interest rates; better than what banks give you

In a major good news, the Government of India has now hiked interest rates of small savings schemes. This comes as a good news for lower and middle class people as now they will earn more interest rates on their deposits made in National Savings scheme, Public Provident Fund, Kisan Vikas Patra and Sukanya Samriddhi Account. The hike made by the government varies from 30 basis points to 40 basis points. It needs to be noted that now, investment in these schemes looks way more attractive than what banks are offering you. Here’s what you need to know: 

Unlike banks, the government notifies interest rate of small savings schemes on quarterly basis and the new hikes are meant for third quarter of current financial year FY19 starting from October 01 and ending at December 31. Whereas, the interest rates on deposits in banks are very volatile and can be changed on monthly basis depending upon scenarios. 

Let’s understand the new interest rates offered by government on small savings, and why they are better than banks' interest rates. 

Firstly, on savings deposits, the government has kept the interest rate unchanged at 4% on annually basis. 

However, for one year deposit, the interest rate is 6.9% quarterly from previous 6.6%. Followed by interest rate of 7%, 7.2% and 7.8% in 2 year, 3 year and 5 year time deposits. Earlier interest rates were at 6.7%, 6.9% and 7.4% on time deposits made for 2 year, 3 year and 5 year. 

As for 5 year recurring deposits, the interest rate is increased to 7.3% on quarterly basis compared to previous 6.9%. 

Going ahead, senior citizens are the biggest beneficiaries under new rates, as now they will receive 8.7% on 5 year savings scheme on quarterly and paid basis. Earlier, the rate was 8.3%. 

On monthly income account, a person will receive 7.7% interest rate from previous 7.3%. 

Also in National Savings Certificate (NSC), a person will get 8% interest rate annually from previous 7.6%. Similarly in Public Provident Fund Scheme, a person gets 8% interest rate annually from previous 7.6%.

The NSC is generally used for small savings and income tax saving investments in India. Whereas, the PPF scheme is most preferred investment pool as it offers attractive interest rate and returns that are fully exempted from Tax. 

In case of savings made in Kisan Vikas Patra, you will be eligible to receive 7.7% on maturity in 112 months. Previously, it was 7.3% on maturity in 118 months. This scheme is referred as small savings instrument that help in facilitating people to invest in long term savings plan.

Even the government brought good news to girl children, as it has increased interest rates to 8.5% annually  in savings made under Sukanya Samriddhi Account Scheme from previous 8.1%.  This scheme motivates parents to build a fund for the future education and marriage expenses for their female child.

Therefore, it can be said that savings in the above mentioned schemes are much attractive then the bank ones, as it offers high return, safety and tax exemption as well. It’s like everything in one box for you. 

As for investment made in savings account under banks, you receive interest rate of in the range of 3.50% to 7%. Banks like Axis Bank, ICICI Bank, Bank of Baroda, Indian Bank, PNB, SBI and HDFC Bank gives lowest rate of 3.50%, whereas the highest 7% is given by DBS Bank. 

Recently, banks like HDFC Bank, SBI, PNB, Axis Bank, Dena Bank have increased their FD interest rates in order to boost deposits. However, it is still not better than what small savings scheme are offering you. FD rates in banks range from lowest 3.50% to highest 8.25% depending upon tenures.