The Indian government is slated to review the interest rates on various small savings schemes, including the Public Provident Fund (PPF), Post Office Fixed Deposits (FD), Sukanya Samriddhi Yojana (SSY), and National Savings Certificate (NSC), on June 30, 2025. The revised rates, if any, will take effect on July 1, 2025, for the July-September quarter of the fiscal year 2025-26.

Factors Influencing a Potential Rate Cut

Several factors suggest a potential reduction in interest rates for these schemes:

• RBI Repo Rate Cuts: The Reserve Bank of India (RBI) has already cut the repo rate by 1% in 2025, with reductions of 25 basis points each in February and April, and a larger cut of 50 basis points in June. This easing of monetary policy typically leads to lower borrowing costs across the board.
• Bank FD Rate Reductions: Following the RBI's lead, many banks have reduced their fixed deposit interest rates and discontinued special FDs that offered higher returns. This reflects a broader trend of declining interest rates in the financial system.
• Falling Bond Yields: Bond yields, which influence small savings rates, have also fallen. The 10-year government bond yield, for example, decreased from 6.779% on January 1 to 6.247% by June 24, 2025.
• Gopinath Committee Formula: The interest rates for small savings schemes are determined based on the recommendations of the Shyamala Gopinath Committee. This formula considers the average yield of government securities in the secondary market plus a 25-basis-point margin. Based on this formula, the PPF rate, for instance, could be reduced.

Potential Impact and Expert Opinions

Experts anticipate a potential rate cut of 25-50 basis points across various schemes. However, some believe the government might refrain from a drastic reduction to protect the interests of small savers, particularly pensioners, retirees, and middle-class households who rely on these schemes for income. It's also worth noting that the government might keep rates steady, now that elections are over and inflation isn't a major concern.

Implications for Investors

If the interest rates are indeed cut, it will primarily impact the returns on PPF and SSY accounts, as the interest on these schemes is calculated on a monthly basis and changes with prevailing rates. For investments in time deposits, recurring deposits, Senior Citizens Savings Scheme, Monthly Income Account, National Savings Certificate and Kisan Vikas Patra, made on or before June 30, 2025, the interest rates are locked in until maturity and will not be affected by the rate cut.

Current Interest Rates on Small Savings Schemes

As of June 2025, the interest rates for some of the popular small savings schemes are:

• PPF: 7.1% per annum
• SSY: 8.2% per annum
• NSC: 7.7% per annum
• Post Office FD: 6.9% - 7.5% per annum (depending on the tenure)
• Senior Citizen Savings Scheme (SCSS): 8.2% per annum

Investment Advice

Given the possibility of a rate cut, financial advisors suggest that investors consider locking in current rates by investing in small savings schemes before June 30, 2025. For those seeking to preserve real returns in a softening rate environment, long-duration debt funds and target maturity bonds may also be attractive options.

Disclaimer: Interest rates are subject to change. Please refer to the official sources for the most up-to-date information.