Interest rate on Public Provident Fund cut to 8.1% from 8.7%; senior citizens to get less

NEW DELHI(PTI): In a move that will hit the common man, the government on Friday slashed interest rates payable on small savings including PPF, Kisan Vikas Patra (KVP) and senior citizen deposits in a bid to align them closer to market rates.

As a part of its February 16 decision to revise interest rates on small savings every quarter, the interest rate on Public Provident Fund (PPF) scheme will be cut to 8.1% for the period April 1 to June 30, from 8.7%, at present.

Similarly, the interest rate on KVP will be cut to 7.8% from 8.7%, according to a Finance Ministry order.

While the interest rate on Post Office savings has been retained at 4 per cent, the same for term deposits of one to five years has been cut.

The popular five-Year National Savings Certificates will earn an interest rate of 8.1% from April 1 as against 8.5%, at present.

A five-year Monthly Income Account will fetch 7.8% as opposed to 8.4% now. Girl-child saving scheme, Sukanya Samriddhi Account will see interest rate of 8.6% as against 9.2%.

Senior citizen savings scheme of five-year would earn 8.6% interest compared with 9.3%.

“On the basis of the decisions of the government, interest rates for small savings schemes are to be notified on quarterly basis,” the order said announcing the rates for the first quarter of fiscal 2016-17.

Post Office term deposits of one, two and three years command an interest rate of 8.4% but from April 1, a 1-year Time Deposit will get 7.1%, 2-year Time Deposit will earn 7.2% and 3-Year Time Deposit will attract interest of 7.4%.

Five-year time deposit will fetch 7.9% interest in the first quarter as against 8.5% while the same on five-year recurring deposit has been slashed to 7.4%

from 8.4%.

The government had on February 16 announced moving small saving interest rates closer to market rates. On that day, rates on short-term post office deposits was cut by 0.25% but long-term instruments such as MIS, PPF, senior citizen and girl child schemes were left untouched.

Post office savings of 1, 2 and 3 year term deposits, Kisan Vikas Patra (KVP) as well as 5-year Recurring Deposits till now earned 0.25% higher interest than the government securities of similar tenures.

This advantage has been withdrawn with effect from April 1, 2016, the Finance Ministry said.

On February 16, the government had left Sukanya Samriddhi Yojana, Senior Citizen Savings Scheme and the Monthly Income Scheme (MIS) — which command 0.75%, 1% and 0.25% higher interest rate respectively than G-secs — untouched, saying they are linked to social security goals.

Similarly, long-term instruments such as 5-year term deposit and similar tenure National Saving Certificates as well as Public Provident Fund (PPF) had been left unchanged.

But today, the interest rates on all these deposits have been cut.

Kisan Vikas Patra or KVP that currently provides for doubling of principal in 100 months (8 years and 4 months) will now be doubled in 110 months (9 years and 2 months) after the interest rate revision.

In February, the government had stated that the cut in small savings interest rate would help the economy move to “a lower overall interest rate regime eventually and thereby help all, particularly low-income and salaried classes”.

The government has also permitted premature closure of PPF accounts “in genuine cases”, like serious ailment or higher education of children.

“This shall be permitted with a penalty of 1% reduction in interest payable on the whole deposit and only for the accounts having completed five years from the date of opening,” it added.

The interest rate for every quarter would be decided on the 15th of the preceding month.

So, for the April-June quarter, rates should have been set on March 15 but they were delayed. The rates for April-June quarter are based on G-Sec rates that prevailed in the previous three months — that is December, January and February.

Posted by on March 18, 2016. Filed under Nation. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.