In the quarter ended April 2020, interest rates on microfinance schemes were slashed. The interest rate was cut to 1.40 per cent. It was decided not to change the rate in the next two quarters.
The interest rate gap between microfinance schemes and bank fixed deposits has widened. This is after the government decided not to change the interest rates on microfinance schemes in the October-December quarter.
In the quarter ended April 2020, interest rates on microfinance schemes were slashed. The interest rate was cut to 1.40 per cent. It was decided not to change the rate in the next two quarters.
Banks have repeatedly slashed interest rates on fixed deposits and SB accounts as the Reserve Bank has slashed the repo rate by 2.50 per cent on several occasions. With this, the interest rate on small savings schemes and bank deposits has gone up.
SBI’s one-year fixed deposit rate is now 4.90 per cent. HDFC Bank will pay 5.10 per cent and ICICI Bank 5 per cent during the period. However, a one-year post office deposit carries an interest rate of 5.5 per cent.
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The bank deposit is the nominal return on deduction of income tax liability. If you pay 30 per cent income tax (including 4 per cent cess), the return on SBI’s investment after tax is only 3.37 per cent. And 3.78 per cent of the post office time deposit.
The interest rate on five-year post office deposits is 6.7 per cent and on SBI deposits 5.40 per cent. HDFC Bank has an interest rate of 5.30 per cent and ICICI Bank has an interest rate of 5.35 per cent. At 30 per cent income tax, the return on SBI deposits is 3.71 per cent and post office 4.60 per cent.
But senior citizens who are bank investors have something to comfort. They will get half a per cent more interest on bank deposits. Post office time deposit does not have this benefit. Small savings schemes offer the facility of earning higher interest rates by availing schemes like Senior Citizens Savings Scheme.
