Post Office Savings Schemes Compete With Bank FDs After 3 Hikes In Rates

The Weighted Average Domestic Term Deposit Rate on fresh deposits (including retail and bulk) of banks increased by 222 bps from May 2022 to February 2023.

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New Delhi: Post office term deposits, which were fetching lesser returns than bank FDs in the recent past, have again become competitive with the government effecting three back-to-back increases in interest rates on small savings schemes. The return on post office term deposits of two years under the small savings schemes is 6.9 percent, the same as offered by most banks on deposits of similar maturity.

After a series of repo rate hikes by the RBI since May 2022, the transmission to retail deposit rates gathered pace in the second half (H2) of the last fiscal after remaining subdued in April-September (H1) period as banks intensified their efforts to garner retail deposits to fund robust credit growth, a central bank analysis. ()

The Weighted Average Domestic Term Deposit Rate ( WADTDR) on fresh deposits (including retail and bulk) of banks increased by 222 basis points (bps) from May 2022 to February 2023. ()

During H1, banks had focussed on mobilising bulk deposits. This was reversed in H2 with the increase in fresh retail deposit rates (122 bps) outpacing that in fresh bulk deposit rates (77 bps), the RBI said.

The transmission to WADTDR on outstanding deposits is picking up, albeit gradually, reflecting the longer maturity profile of term deposits contracted at fixed rates, the RBI said.

As regards the small savings instruments (SSIs), the government has increased the interest rates by 10-30 bps for October-December quarter of 2022-23, 20-110 bps for January-March quarter of 2022-23, and 10-70 bps for the first quarter of the current fiscal.

The interest rates on SSIs had remained unchanged for nine consecutive quarters -- from the second quarter of 2020-21 to the second quarter of 2022-23. With these adjustments, rates on most of the SSIs are closely aligned with the formula-based rates, the RBI said.

Interest rates on SSIs, which are administered by the government, are linked to secondary market yields on G-secs of comparable maturities.