Interest on post office FDs, savings schemes hiked by 70 bps as bond yields rise

From tax savings to keeping funds secure in a volatile economic environment, savings schemes for senior citizens and post office fixed deposits remain preferred options. About 95 per cent of the people in India prefer FDs, as they provide guaranteed returns on investment with interest piling up over time.

Now the government has hiked interest rates on post office fixed deposits, sukanya savings scheme, monthly income savings schemes and senior citizens savings schemes by 70 basis points.

Higher returns ahead

This means that interest offered on all these schemes will go up by 0.7 per cent, while the same on PPF schemes will remain unchanged at 7.1 per cent.

These interest rate hikes are triggered by the sharp rise in yields of government bonds, to which all small savings rates are linked.

The changes were announced by the Finance Ministry through a circular and also included higher interest for National Savings Certificate and Kisan Vikas Patra.

Driven by bond yields

The committee to formulate the interest hike had recommended that rates on schemes should be 25 to 100 basis points higher than government bond yields.

These bond yields have gone up as people are selling off debt instruments in the anticipation of interest rate hikes to control inflation.

The development offers higher returns to fixed-income investors, who had been stuck with interest rates at a 10-year low.