With government bond yields on the rise, there is a possibility of a hike in the interest rates of savings schemes and investments. The interest rates for Provident Fund Account (PPF), Senior Citizen Savings Scheme (SCSS), Sukanya Samriddhi Accounts (SCA), National Savings Certificates (NSC), etc., are set for review by the end of this month, according to multiple media reports.
What could be the Reason Behind the Hike in Interest Rates?
The benchmark 10-year bond yield has seen an increase of an average of 7.31% in the quarter of June to August. This has further raised expectations for the upcoming quarter results, which are to be declared by the end of September.
How are the Interest Rates of Savings Schemes Calculated?
The interest rates of small savings schemes are linked to the market yields of government bonds. The Finance Department reviews the interest rates of small savings schemes every quarter based on the G-Sec gains. The change in rates is based on formulae recommended by Shyamala Gopinath Committee in 2011. As per the formula, an increase of 100 basis points of G-Sec yields equals a 1% interest rate hike in small savings schemes.
As per the formula followed by the Ministry of Finance, the PPF interest rate could go up to 7.56% in the upcoming quarter. Similarly, the interest rate for Sukanya Samriddhi Yojana could also increase to 8.3% from its current rate of 7.6%.
However, the government might also decide not to go ahead with an increase in rates. There have been instances when the interest rates were revised downwards, for example, in the April-June Quarter of 2020. Hence, the final verdict can only prevail if the predictions will stand valid.
Most Indians prefer investing in Government schemes as there are considered to be less risky than other investment avenues. If the interest rate hike happens, it could help millions of Indians to earn more on their investments.
So, what is your preferred investment avenue? Government schemes, mutual funds, stocks, or crypto? Let us know in the comment section. Also, don’t forget to follow #TrendingNow – personal finance tidbits curated by the experts.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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