The Ministry of Finance has announced new rates on small savings schemes for the quarter April to June 2020. These rates have seen a major cut from their previous levels. Interest on some schemes such as the 1-3-year term deposit and the 5-year recurring deposit have been cut by 1.40% each. Even for Senior Citizen Savings Scheme the rate has been reduced by 1.20%. This would imply an interest income of Rs. 3,000 less per quarter on a deposit of Rs. 10 Lakhs. Unfortunately, this is coming at a time when the coronavirus pandemic is hitting people hard.
The reason for this swift drop was the cut in the Repo rate by RBI and hence the drop in the yields of government securities. This caused a mismatch between interest rates of the bank FDs and the savings schemes.
What should you do as an investor? If you are relying on the interest for your regular income, there isn’t much of an option as these are probably still amongst the best available rates. However, if you are invested in these schemes for diversification, you could look at hybrid or equity mutual funds.