Every 3 months, around the last day of March, June, September and December, the Finance Ministry puts out a short notification about the interest rates of the small savings scheme.
People treat that circular as if someone in the govt. just woke up and picked a number. That is not how it works. There is a process. It is just not as mechanical as a calculator.
A bit of historical context will help here. Till 2011, small savings rates were largely administered and revised once a year, if at all (see historical PPF interest rates). That created a problem. When market rates fell, money rushed into PPF, NSC and post office deposits because those rates had not moved. When market rates rose, collections dried up. The National Small Savings Fund, which funnels this money onwards, became a source of expensive, lumpy borrowing.
The Shyamala Gopinath Committee, set up to review NSSF, said the obvious thing: align small savings with market rates. In November–December 2011 the government accepted that idea. Rates would be benchmarked to G-secs of similar maturity, with a positive spread.
From February 2016, the review itself was made quarterly, and the new system took effect from April 2016.
The method is simple on paper. Take the average secondary-market yield, in the previous quarter, of government securities of a comparable maturity. Add a scheme-specific spread. That becomes the “formula” rate.
For most products, the spread is 25 basis points. PPF is usually mapped to the 10-year G-sec plus 25 bps. NSC and several time deposits use a similar 25 bps over the matching tenor. Sukanya gets 75 bps, and SCSS gets 100 bps, given the social purpose. So if the relevant 10-year yield in the previous quarter averaged 6.8%, the formula would point PPF towards something near 7.05%. That is the starting point. It is not the ending point.
The government has almost never followed the formula exactly. When yields were very low, notified rates stayed higher. When yields rose, PPF was often left untouched even as NSC or SCSS moved. Tax-free status of PPF and Sukanya, the size of the PPF corpus the govt. has now, the interest burden on the budget, inflation, and the need not to undercut bank deposits all sit on the table along with the G-sec number.
Banks have an interest here. Their FDs compete with these schemes. A fat spread on PPF makes their own products look dull. That lobbying is old and has never fully gone away.
Two more practical points.
First, a quarterly review does not mean a quarterly change. The ministry can, and often does, keep every rate unchanged. That has been the pattern for a long stretch now. PPF rates were last changed in April 2020. That is 6+ years as of now.
Second, the lock-in is not the same for every product. PPF and Sukanya earn the prevailing notified rate on the outstanding balance, so old money also moves when the rate changes. SCSS, NSC, KVP and post office time deposits lock the rate for that investment at the time you put the money in.
If you are waiting for PPF to jump because “10-year yields have risen,” you may wait a long time. The formula is a guide. The notification is a fiscal and policy decision that uses that guide. That is the system. Market-linked in design. Discretionary in practice. Reviewed every quarter. Changed only when the government decides the gap has become too large to ignore.
Where do the formula and the actual rates stand today?
Rates for October–December 2026 are unchanged again (details here). The G-sec numbers underneath have not stood still. Against a July–September five-year G-sec average of about 6.5%, the formula (plus 25 bps) points NSC towards 6.75%. The notified rate is still 7.7% — almost 1% extra. That is the widest gap right now. The five-year post office deposit at 7.5% is about 75 bps above the formula. SCSS at 8.2% is still ~70 bps above even after its 100 bps extra spread. MIS at 7.4% is about 65 bps rich.
PPF at 7.1% is the scheme the government is usually slowest to move – the whole balance reprices, and the interest is tax-free. Sukanya at 8.2% also sits well above its 75 bps spread. So the extra juice is not even.