What Are Small Savings Schemes? Everything You Need to Know in 2025

Small savings schemes are financial instruments launched by the Central Government to promote savings among the general public, particularly among middle- and lower-income groups. These schemes are designed to offer attractive returns, safety, and tax benefits, making them a preferred option for conservative investors.

Quarterly Revision of Interest Rates

Interest rates on small savings schemes are set by the government and revised quarterly. For example, the rates applicable from April to June 2025 were announced on March 31. These revisions ensure that the returns stay aligned with market conditions.

Understanding Small Savings Plans

These schemes are attractive because they typically offer higher returns than traditional bank fixed deposits. In addition to a sovereign guarantee, many of them also qualify for tax exemptions, particularly under Section 80C of the Income Tax Act. Since 2016, the Ministry of Finance has adopted a quarterly review mechanism to determine applicable interest rates.

All deposits made under these schemes are pooled into the National Small Savings Fund (NSSF). The funds in NSSF are then used by the central government to bridge its fiscal deficit.

Key Highlights of Small Savings Schemes

• Low risk as they are backed by the Government of India
• Attractive and fixed interest rates, revised every quarter
• Accessible to all citizens, regardless of income level
• Tax benefits under Section 80C for several schemes
• Encourages financial inclusion and long-term savings habits

Categories of Small Savings Schemes
Small savings instruments can be classified into three broad categories:

1. Post Office Deposit Schemes

• These include savings deposits, recurring deposits, time deposits (for 1, 2, 3, and 5 years), and the Monthly Income Account.
• 3-year Time Deposit: 7.1% interest annually
• 1-year Time Deposit: 6.9% interest annually
• Savings Account: 4% interest per annum
• 5-year Recurring Deposit: 6.7% interest
• Monthly Income Account: 7.4% interest per annum

Accounts can be opened individually or jointly with minimal initial deposits.

2. Savings Certificates
These include the National Savings Certificate (NSC) and Kisan Vikas Patra (KVP):

• NSC: Offers 7.7% interest annually with a 5-year maturity. Interest is reinvested yearly, and it qualifies for 80C tax benefits.
• KVP: Provides 7.5% compounded interest yearly with no upper investment limit. Minimum investment starts at Rs 1,000.

3. Social Security Schemes

This category includes:

• Public Provident Fund (PPF): Offers 7.1% interest. It has a 15-year lock-in period and can be extended in 5-year blocks. Earnings are tax-exempt at maturity.
• Sukanya Samriddhi Account: Designed for the girl child below 10 years of age. Offers 8.2% annual interest and tax benefits under 80C. The deposit tenure is 21 years. The maximum annual deposit is Rs 1.5 lakh.
• Senior Citizens Savings Scheme (SCSS): Available to individuals over 60 years old. Offers 8.2% interest, payable quarterly. Comes with tax benefits under 80C and has a 5-year maturity.

How Are Interest Rates Determined?

The interest rates on small savings schemes are aligned with the yields of Government Securities (G-Secs) of similar maturities. A predetermined spread (markup) is added to the G-Sec rates depending on the scheme. For instance, the Senior Citizens Savings Scheme gets a 1% markup over equivalent G-Sec yields.

According to The Hindu, the reason for this linkage is to ensure that small savings rates reflect prevailing economic trends, as G-Sec yields incorporate real-time market expectations of interest rates.

Current Market Conditions Affecting Rates

With the Reserve Bank of India (RBI) gradually reducing its repo rate—now at 6%, down from 6.5%—market yields have declined. For example:

The 10-year G-Sec yield has dropped from 7.2% a year ago to 6.36% now.

This decline in G-Sec yields suggests that when the interest rates for the July–September 2025 quarter are announced on June 30, they could be lower, reflecting ongoing economic conditions like low inflation and sluggish growth.

Small savings schemes remain an ideal choice for risk-averse investors looking for guaranteed returns and tax advantages. With regular interest rate reviews and direct backing by the government, these schemes continue to be a reliable part of India’s savings ecosystem.