Fixed deposits (FDs) have been witnessing interest rate hikes since May last year as the RBI has raised 250 basis points in the key repo rate, thus prompting banks to raise the interest rates on FDs. As a result of this, bank FDs have started becoming attractive, surpassing inflation rates. On Friday, the government also raised interest rates on small savings schemes such as PPF, NSC, SSY and post office deposits. Are FDs offering more returns than small savings schemes? Here’s the comparison:
Bank FDs
Bank fixed deposits are time deposits wherein depositors keep their money for a fixed time, let’s say, 6 months, 1 year, 3 years or 5 years. The bank offers fixed annual interest rates on this fixed deposit, and the rates vary based on FD tenure and the depositor’s age.
Currently, HDFC Bank offers up to 7.1 per cent interest rates for the general public and up to 7.6 per cent rates for senior citizens (above 60 years of age). PNB offers up to 7.25 per cent for the general public and 7.75 per cent for senior citizens. ICICI Bank offers up to 7.1 per cent to the general public and 7.6 per cent to senior citizens.
Small Savings Schemes
These are savings instruments managed by the government to encourage citizens to save regularly. The small savings schemes have three categories — savings deposits, social security schemes and monthly income plan.
Saving deposits include 1-3-year time deposits and 5-year recurring deposits. These also include saving certificates such as National Saving Certificates (NSC) and Kisan Vikas Patra (KVP). Social security schemes include Public Provident Fund (PPF), Sukanya Samriddhi Account and Senior Citizens Savings Scheme. The monthly income plan includes the Monthly Income Account.
Latest Interest Rates On Various Small Savings Schemes for June 2023 Quarter:
Savings Deposit: 4 per cent
1-Year Post Office Time Deposits: 6.8 per cent
2-Year Post Office Time Deposits: 6.9 per cent
3-Year Post Office Time Deposits: 7 per cent
5-Year Post Office Time Deposits: 7.5 per cent
National Saving Certificates (NSC): 7.7 per cent
Kisan Vikas Patra: 7.5 per cent (will mature in 115 months)
Public Provident Fund: 7.1 per cent
Sukanya Samriddhi Account: 8.0 per cent.
Aditi Nayar, chief economist and head (research & outreach) at ICRA, said, “As expected, small savings interest rates have been hiked by 10-70 bps across various instruments. This should help to garner steady deposits in the coming quarter, in light of the expected rate hike from the MPC in April 2023, which would subsequently get transmitted to bank deposit rates.”
The Reserve Bank since May has raised the benchmark lending rate by 2.5 per cent to 6.5 per cent, prompting banks to raise interest rates on deposits as well.
The RBI raised the repo rate or short-term lending rate by 25 basis points last month. This was the sixth consecutive rate hike after a 40 basis points increase in May and 50 basis points hike each in June, August and September. In all, the RBI has raised the benchmark rate by 2.5 per cent since May last year.
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