The Ministry of Finance is scheduled to review the interest rates for post office small savings schemes on September 30, 2025, for the October-December quarter. This review occurs amidst a backdrop of repo rate cuts by the Reserve Bank of India (RBI) and softening government bond yields.

Factors Influencing Potential Rate Cuts

Several factors suggest that a rate cut in post office small savings schemes could be on the horizon:

• RBI Repo Rate Cuts: The RBI has reduced the repo rate, the rate at which banks borrow from the RBI, three times in 2025. The repo rate started at 6.50% in January and has been reduced to 5.50% through cuts in February, April, and June. These cuts generally lead to lower borrowing costs for banks.
• Declining G-Sec Yields: Interest rates for small savings schemes are theoretically benchmarked to the yields on government securities (G-Secs) of comparable maturity, with a spread. For instance, the Shyamala Gopinath Committee suggested a 25 basis point spread. A decline in G-Sec yields can signal a lower interest rate environment. As an example, the 10-year G-Sec yield fell from 6.779% on January 1, 2025, to 6.483% by September 24, 2025.
• Banks Reducing FD Rates: Following the repo rate cuts, many commercial banks have lowered interest rates on fixed deposits (FDs) and withdrawn high-interest FD options. This often influences the trajectory of small savings scheme rates.

How Interest Rates are Determined

The Shyamala Gopinath Committee's recommendations form the basis for determining small savings schemes' interest rates. The committee suggested linking rates to secondary market yields on government securities, adding a 25 basis point spread. For example, the Public Provident Fund (PPF) rate is derived from the average yield of a 10-year G-sec plus a 25 bps spread.

Current Post Office Small Savings Scheme Rates

As of September 2025, the interest rates for some of the popular post office schemes are:

• Post Office Savings Account: 4% per annum
• National Savings Recurring Deposit Account (RD): 6.7% per annum, compounded quarterly
• Post Office Monthly Income Scheme (MIS): 7.4% per annum, payable monthly
• Senior Citizens Savings Scheme (SCSS): 8.2% per annum
• Public Provident Fund (PPF): 7.1% per annum, compounded yearly
• Sukanya Samriddhi Account (SSA): 8.2% per annum
• National Savings Time Deposit (TD): 6.9% to 7.5%, varying based on the period
• Kisan Vikas Patra (KVP): 7.5%, compounded yearly

Potential Impact of Rate Cuts

If the government reduces interest rates on small savings schemes, it could have several implications:

• Reduced Returns for Savers: Lower interest rates would mean reduced returns for investors in these schemes. This could affect individuals, particularly senior citizens and those relying on these schemes for regular income.
• Impact on Government Finances: Maintaining higher interest rates on small savings schemes puts pressure on government finances. Reducing rates can ease this burden.
• Banks to Benefit: When the government reduces interest rates for small savings schemes, it reduces the unfair competition between banks and small saving schemes. This allows banks to mobilize deposits more effectively and transmit the benefits of rate cuts.

Other Factors

Political factors can also influence the rate change. The government may choose to maintain current rates despite economic indicators to protect the interests of savers, especially with the potential political implications of cutting them.

The last revision to small savings scheme rates occurred in the January-March 2024 quarter when the government increased the three-year time deposit rate and the Sukanya Samriddhi Yojana (SSY) rate. Rates for most other schemes have remained steady since then.

The outcome of the Finance Ministry's review on September 30, 2025, will determine whether these rates will remain unchanged or be adjusted to reflect the current economic environment.