Why are PPF and Sukanya Samriddhi interest rates still so high?!

The government announced the interest rates for small saving schemes yesterday and surprising or should I say unsurprisingly, the interest rates of many schemes, especially the long-term ones like PPF and Sukanya Samriddhi are still too high! Why is the government not sticking to policy?

If you are surprised by the title in spite of the fact that rates have headed south this year, an explanation is provided below. But first, a look at the entire list of revised rates.


Source: finmin announcement

Several committees that have discussed the future course of small saving schemes have recommended to the government for years now that it can longer set flat interest rates for these schemes and that these instruments must be linked to market rates at least once every quarter. Read more: The evolution of Public Provident Fund (PPF) Interest Rates.

On Feb 16th 2016, the government decided to implement this recommendation.

The 10-year government bond is usually considered as the benchmark for PPF and the newly introduced Sukanya Samriddhi Yojana (SSY).

SSY is supposed to enjoy a 0.75% higher return over "prevailing 10Y bond market rates" and PPF a 0.25% higher return. The table for determining market returns as given by above link is


FIMMDA = Fixed income money market and derivates association.

The month end bond yields are given below (source S&P BSE and investing.com)

Date10Y bond yield15Y bond yield

So as per the formula prescribed by the government, the current interest rate for PPF should be ~ 7.5% and SSY ~ 8%.

The actual rates are 0.5% higher than this. Hence the titular question.

The answer is obvious. The government does not seem inclined to follow the formula (it did not do so last quarter too) because very few of its citizens have the maturity to understand

why small saving scheme interest rates should be higher.

why interest rates are cyclic.

and why low-interest rates are good for both the individual and the country as a whole.


Here are the 10-year and 15-year bond yields that tell the story much better.

India 10-year bond yield

Source: S&P BSE 10Y bond index

India 15-year bond yield

Source: investing.com


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5 thoughts on “Why are PPF and Sukanya Samriddhi interest rates still so high?!

  1. madascene

    At this rate, I am beginning to question whether PPF is really worth investing in. The lock-in period is massive and yet the rates keep dropping every quarter which means a double whammy. All my money is now locked at even lower Interest rate and there is not much I can do about it.

    Any instrument whose rate fluctuates as frequently as every quarter shouldn't have a 15 year lock-in period. It puts investors at a great disadvantage. I think it's time the government reviews the lock-in period and reduces it to something like 5 years or so.

  2. kantilal Patel

    PPF & SSY investment intruments are loosing their popularity on account of downward revision of interest rates every quarter and that to with lock in period of 15 years or more. Govt authority is not thinking for the public at large.

  3. Pradeep

    I remember a person called Raghuram Rajan vouching for lowering of these rates not long ago. He has since moved on knowing fully well that rational and honest thoughts are not appreciated in our country neither by the citizens nor the government. He also wanted banks to lower their lending rates.
    But logically speaking PPF and Sukanya schemes are very long term schemes, so anyone who wants to put the money in there is lending a long term loan (15 years or more) to the govt, so its not entirely wrong to pay slightly higher rates.
    Other deposit rates can come down. But then do you think banks will reduce lending rates still?
    There is so much anticipation that RBI will cut 0.25% on Oct 4, which will then bring down bank deposit rates. However I am sure they will keep lending rates same or cut 0.05%.
    So whats the point of reducing rates by RBI or govt small saving schemes?
    And finally govt bond yields does not have any relation to inflation which is why Rajan aimed at giving some real returns to savers by not cutting rates drastically,

  4. DerTa

    The comments made here by few confirm the point that the writer says namely : "The government does not seem inclined to follow the formula (it did not do so last quarter too) because very few of its citizens have the maturity to understand"

    Brilliantly Stated !

    And for others who are complaining about lower interest rates, let us admit this. In a country like India where the public entities (Government) and the larger public (read majority of poor people) are net borrowers . Lazy investing can never give great returns and yes, Small Savings represent lazy investing IMO


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