Interest now; what it means for you

The government on Friday slashed interest rates on small savings schemes, including Public provident Fund (PPF) and Kisan Vikas Patra (KVP), by 10 basis points to align them with market rates, a move that may facilitate further rate cuts by commercial banks in the absence of policy rate cuts by the Reserve Bank of India (RBI).

A basis point is one-hundredth of a percentage point.

RBI is expected to hold rates in its quarterly monetary policy review on April 6. The central bank in its last policy review in February changed its stance to neutral from accommodative, citing inflationary pressure. However, the linking of interest rates of small savings schemes to the yields of government bonds is expected to allow banks to pass on policy rate cuts by the central bank through lower lending rates.

“We are doing it keeping in mind the interests of small investors,” economic affairs secretary Shaktikanta Das said.

So, should you rethink your investments in these schemes?

The scheme for the girl child Sukanya Samriddhi Account Scheme, and five-year Senior Citizens Savings Scheme will provide 8.4% return. The five-year monthly income scheme will offer 7.6% returns. Term deposits of 1-5 years will offer 6.9-7.7%. The five-year recurring deposit will earn 7.2% interest.