Senior Citizens Happy As Small Savings Rates Untouched

The circular, issued by the Ministry of Finance on June 30, said, “The rates of interest on various small savings schemes for the second quarter of FY2025-26 starting from July 1, 2025 and ending on September 30, 2025, shall remain unchanged from those notified for the first quarter (April 1, 2025 to June 30, 2025) of FY2025-26.”

After the repo rate cut by the Reserve Bank of India (RBI), small savers were apprehensive that small savings rates would be slashed.

The RBI reduced the repo rate by 50 basis points, after slashing the rates by 25 basis points each in February and April. With this reduction — the third consecutive cut this year — the repo rate now stands at 5.50 per cent.

For the time being, the unchanged small savings rate, therefore, brings relief to crores of people with small savings in the country.

Relief For Senior Citizens

Senior citizens are always wary of any rate cut. In any inflationary situation, rate cuts reduce the purchasing power of their existing savings. However, the SCSS interest rate will remain at 8.2 per cent per annum.

The Monthly Income Scheme (MIS) is another important instrument for the senior citizen to maintain monthly liquidity. Part of their existing savings comes back every month to meet daily expenses. This rate, too, remains unchanged, at 7.4 per cent.

The interest rates on the NSC and Kisan Vikas Patra (KVP) will also remain at 7.7 per cent and 7.5 per cent, respectively, for this quarter. The flagship Sukanya Samriddhi Yojana will also remain at 8.2 per cent.

Indian Households Back To Small Savings Schemes

Small savings of households (excluding PPF) in the Indian economy jumped to Rs 3.1 lakh crore in 2023-24, from Rs 2.0 lakh crore in 2022-23. A lower figure in 2022-23, for example, signified the financial stress of the population during Covid-19.

As a percentage of total household financial assets, small savings, excluding PPF, plummeted to 6.8 per cent in 2022-23, from 9.2 per cent in 2021-22. However, the savings ratio recovered in 2023-24 to 9.0 per cent.

As people once again started earning money in the aftermath of the pandemic, the reliance on small savings as a preferred way of saving also returned.

However, the Indian households’ contribution to Provident and Pension Funds (including PPF), as a percentage of total household financial assets in the country, went down to 20.9 per cent in 2023-24, from 21.3 per cent in 2022-23.

There May Be Some Red Flags

The fall in households’ contribution to these structured funds underlines the lack of formal jobs in the economy. Even if part of this is due to a withdrawal from these social security funds, it does not bode well for the economy. If some households are utilising these retirement funds for current consumption, it may be an indicator of financial stress.

A similar drop can be seen in households’ savings in life insurance funds as well. As a percentage of the total household financial assets in the country, household savings in life insurance dropped to 17.2 per cent in 2023-24, from 18.7 per cent in 2022-23.

There is, of course, other evidence of households employing their savings money more in the equity market, via the SIP (systematic investment plan) of mutual funds, in recent times.

However, the bounce back in small savings (excluding PPF) in 2023-24 is also indicative of another shift in the savings behaviour of Indian households. Maybe, the volatility of the stock markets is no longer palatable to an average Indian household. And hence, there is this comeback towards small savings schemes.

So, the government’s decision not to change the small savings rates is likely to benefit every Indian household. However, if there is a further rate cut in the future, it may not be financially feasible for the government to continue with the small savings rates.