Small Savings Schemes, more popularly known as Post Office/NSC/Senior Citizen Savings schemes have always garnered interest in the mind of the average conservative Indian investor. This is because they provide returns higher than Bank Fixed Deposits and also, the twin benefits of Sovereign guarantee and tax exemptions. The attractiveness has become more pronounced in the last few years as the rates were not reduced despite decline in the G-sec yields in the past.
Since April 2016, SSS rates are reviewed every quarter and MOF notifies the same at the end of the quarter. The rates are linked to G-sec yields. The formula for calculating these yields was suggested by the Shyamala Gopinath Committee. The interest rates are usually fixed at 25-100 bps above G-sec yields of similar maturity. Most of the instruments have a spread of 25-bps over G-sec yields of similar maturity with two exceptions; the Senior Citizen’s Savings scheme can have a 100-bps spread and the 10 Year NSC, a 50-bps spread.
The Current rates are given below:
Rate of interest wef 1/04/22 to 30/09/22
Post Office Savings
1 Year Time Deposit
3 Year Time Deposit
5 Year Time Deposit
5 Year Time Deposit
5 Year Recurring Deposit
Senior Citizen's Savings
Monthly Income Account
Kisan Vikas Patra
Considering higher inflation and elevated interest rates, let’s look at the current scenario:
Senior Citizen’s Saving scheme’s interest rate is linked to 5-year Govt. bond yields. Current 5-year yield is around 6.97% and thus if we apply a minimum 25 bps spread, it would be at 7.22% (lower than the actual rate seen in the above table).
In case the 5-year yields move higher, or the administration takes a higher spread (anywhere between 25 to 100 bps), this scheme’s interest rate should move higher.
Similarly for all other time deposit schemes and NSC’s.
So, a good time for investing in these schemes is to wait for the September quarter to see if there will be any hike in the rates.