The Centre on Friday announced an upward revision in eight small savings schemes in the range of 20-110 basis points, effective from January 1, 2023.

The changes are in tune with rising interest rates in the markets with the RBI increasing the policy rate to check inflation.

Term deposits with a tenure of one year will increase to 6.6 per cent from 5.5 per cent; of two-years to 6.8 per cent from 5.7 per cent; three years to 6.9 per cent from 5.8 per cent; and five years to 7 per cent from 6.7 per cent.

The interest rate on the Senior Citizens Savings Scheme will increase to 8 per cent from 7.6 per cent.

The monthly income scheme interest rate will go up to 7.1 per cent from 6.7 per cent.

National Savings Certificate will fetch an interest rate of 7 per cent, up from 6.8 per cent earlier.

Kisan Vikas Patra with a maturity of 120 months will have a higher interest rate of 7.2 per cent against 7 per cent with a maturity of 123 months earlier.

However, in the case of certain schemes such as five-year recurring deposit, PPF and Sukanya Samridhhi Account and savings accounts, the existing interest rates have not been changed.

Interest rates have been increased by banks and nonbank finance companies after the Reserve Bank of India increased its key policy rate by 225 basis points since April in a bid to contain inflation.

The RBI in its Monetary Policy Report released on September 30 had observed that interest rates on various small savings instruments — which are fixed on a quarterly basis with a spread of 0-100 basis points over and above G-sec yields of comparable maturities — have been revised upwards in the range of 10-30 basis points for the third quarter of 2022-23, after remaining unchanged for nine consecutive quarters.

With G-sec yields moving higher, the prevailing interest rates on various schemes were still 44-77 basis points below the formula implied rates for the third quarter.

In the September-November period, which is the reference period for small savings interest rates for January-March, the yield on fiveyear government bonds rose around 15 basis points, while 10-year bond yields increased 10 basis points over the same period.

Market analysts anticipate the interest rate to continue to rise with a possibility of a further 25 basis point rise in the rates.

“We see the February policy decision likely to be finely split between a last 25 basis points hike and a pause with a bias towards a hike given that concurrent inflation readings then will be above 6 per cent and H1FY24 inflation outlook remains skewed towards the 5-5.5 per cent range,” Kotak Economic Research said.