Interest rates on modest savings accounts could go up a little bit between January and March of 2024

 Interest rates on modest savings accounts could go up a little bit between January and March of 2024

Interest rates on modest savings accounts could go up a little bit between January and March of 2024

Despite being established by the government, interest rates on modest savings plans are based on market yields on government securities, with a range of 0-100 basis points on the return on these assets of comparable maturity.

On September 29, the government increased the interest rate on five-year recurring deposits by 20 basis points, to 6.7% for the months of October through December, while maintaining the same rates on other modest savings accounts.

The Finance Ministry will have the last say on whether to raise interest rates on modest savings plans for the sixth straight quarter starting in January 2024, depending on the underlying facts.

On December 29, 2024, the government is anticipated to announce modest savings interest rates for the first quarter.

These schemes' interest rates are spread between 0 and 100 basis points above the market yields on government securities with a comparable term. Interest rates on modest savings plans need to increase in tandem with increases in market returns on government assets.

The reference period for modest savings interest rates for January through March 2024 is September through November 2023. During this time, the yield on five-year government bonds increased by around 10 basis points, while the yield on 10-year bonds increased by 15 basis points. One tenth of a percentage point is equal to one basis point.

The government hasn't always adjusted these interest rates according to the established formula, however. The Public Provident Fund, one of the most well-liked modest savings programs, should have a formula-based interest rate of 7.51%, according the RBI's most recent monetary policy report, which was published on October 6. However, the rate, which stands at 7.1%, hasn't altered in over three and a half years.

Because of the tax advantages provided by the program, a senior government official was cited in October as claiming that the government had "deliberately" chosen not to raise the interest rate on PPF in accordance with increases in market interest rates.

On September 29, the Finance Ministry said that other minor savings rates will remain constant while increasing the interest rate on five-year recurring deposits by 20 basis points to 6.7% for the months of October through December. After being the same for nine straight quarters, modest savings rates jumped for the sixth time in a row this quarter. In the last six quarters, interest rates have risen by 40 to 150 basis points.