Are your savings at risk? Government may slash PPF, NSC rates next week

India Today

3 days ago

The government may lower interest rates on small savings schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC), and others during its upcoming quarterly review on June 30, 2025, reported The Economic Times (ET).If rates are revised, the changes will come into effect from July 1 for the July–September quarter of FY26.So far this year, interest rates for schemes such as Sukanya Samriddhi Yojana (SSY), Senior Citizens Savings Scheme (SCSS), and Post Office term deposits have remained unchanged. However, this may not continue in the next quarter.WHY A RATE CUT IS BEING CONSIDEREDOne of the key reasons behind this expected change is the Reserve Bank of India's decision to cut the repo rate by a total of 1% so far in 2025. The central bank reduced the repo rate in February and April by 25 basis points each, followed by a larger 50 basis points cut in June.Banks have already responded by lowering interest rates on fixed deposits. Some have even discontinued special FDs that offered higher returns for limited periods.Bond yields, which influence the interest rates of small savings, have also fallen. According to Investing.com, the 10-year government bond yield dropped from 6.779% on January 1 to 6.247% by June 24 — a decline of 0.532%. Lower bond yields are usually a sign that small savings rates may be cut.HOW THESE RATES ARE CALCULATEDInterest rates for small savings are set based on the Shyamala Gopinath Committee's recommendations. The formula uses the average yield of government securities in the secondary market and adds a 25-basis-point margin.For instance, the average 10-year G-sec yield between March 24 and June 24, 2025, is 6.325%. Adding 25 basis points brings it to 6.575%. Currently, PPF offers 7.10%, which is much higher than the formula suggests. This difference is why a cut is being considered, though the government may still choose to hold rates steady.Speaking to ET, Rajani Tandale, Senior Vice President – Mutual Fund at 1 Finance, said the RBI's 50-basis-point cut in June, along with earlier reductions, brings the total repo rate cut in 2025 to 1%. She said this aligns with the central bank's aim to support growth by lowering borrowing costs.'As a result, interest rates for small savings schemes are likely to be lowered,' she said, while noting the final call will depend on the government's review and current market conditions.Atul Shinghal, Founder and CEO of Scripbox, also told ET, 'SSS rates, while administratively set, are typically aligned with prevailing interest rate trends and yields on government securities.'He added that several banks have already reduced fixed deposit rates, and this shows broader rate transmission is happening. According to him, it is likely that PPF, SSY, and NSC interest rates could be cut by 25 to 50 basis points.Soumya Sarkar, Co-Founder of Wealth Redefine, shared a slightly different view.He explained that while a 1% cut in repo rate points towards lower returns on small savings, the decision isn't automatic.'These schemes are lifelines for pensioners, retirees and middle-class households. A big cut could hurt them, especially when inflation is low and FD rates are already falling,' he told ET.Sarkar added that while a small cut of 0.1% to 0.3% is possible, a sharp drop seems unlikely. The government, he noted, may even choose to keep rates steady to protect savers.WHAT INVESTORS SHOULD DO NOWThose planning to invest in small savings schemes should consider doing so before June 30. If they invest before the new rates take effect on July 1, their returns, especially for time-bound schemes like NSC, SCSS, and time deposits, will remain locked at the current rates until maturity.PPF and SSY, however, are not fixed-rate investments. Their interest rates change over time and are calculated monthly. So, even if you invest now, future interest payments could be affected by a rate cut.Shinghal said 'Investors may consider locking into current Small Savings Scheme rates before the revision.' He also suggested that in a falling interest rate environment, long-term debt funds and target maturity bonds might become attractive alternatives for those looking to preserve real returns.(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)- EndsMust Watch
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