Small savings schemes: Interest rates on PPF, KVP, others reduced

S V Krishnamachari
post office savings, small savings interest rates, ppf interest rate, nsc

The government has reduced the interest rates on certain small savings schemes with effect from April 1, 2017. The rates, announced on Tuesday (March 31) and applicable for the April-June quarter, is expected to trigger a similar response from commercial banks and also raises hopes of a cut in repo rate by the RBI when it meet for its first bi-monthly monetary policy meeting on April 5-6. 

The government had left the rates unchanged for the January-March quarter.

Deposits in public provident fund (PPF) will fetch 7.9 percent per annum as against the existing 8 percent. The impact on the five-year National Savings Certificate (NSC) will be the same, while the rate of interest on post office savings account has been left untouched.

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The five-year senior citizens savings scheme will fetch 8.4 percent, down from the current 8.5 percent. It may be recalled that Prime Minister Narendra Modi had announced a new scheme for senior citizens on December 31, 2016. "Under the scheme, senior citizens will receive a fixed interest rate of 8 per cent for a period of 10 years, on deposits up to 7.5 lakh rupees. The interest will be paid monthly," he said in his televised address.

Other schemes that will see a reduction in interest rates include Kisan Vikas Patra, or KVP (revised rate - 7.6 percent, current rate - 7.7 percent), Sukanya Samriddhi Account Scheme (revised 8.4 percent, current rate - 8.5 percent) and term deposits for 1 to 5 year tenures.

"On the basis of the decision of the government, interest rates for small savings schemes are to be notified on a quarterly basis," the finance ministry said in a statement.

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To put things in perspective, bank deposits for a duration of more than one year fetch around 6.5 to 7 percent.

The move, a politically-sensitive one, comes after the BJP is done with one round of Assembly polls  while the next in Gujarat and Himachal Pradesh is due later this year (around December).

The April 5-6 meeting of the RBI's Monetary Policy Committee meeting will be the first for the financial year 2017-18. The current repo rate is 6.25 percent.

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Features of the Post Office Senior Citizens Savings Scheme:

  • From 1.10.2016, interest rates are as follows:-8.5 percent per annum, payable from the date of deposit of 31st March/30th Sept/31st December in the first instance & thereafter, interest shall be payable on 31st March, 30th June, 30th Sept and 31st December.
  • There shall be only one deposit in the account in multiple of Rs 1,000/- maximum not exceeding Rs 15 lakh.
  • Account can be opened by cash for the amount below Rs 1 lakh and for Rs 1 lakh and above by cheque only.
  • Premature closure is allowed after one year on deduction of an amount equal to1.5% of the deposit & after 2 years 1% of the deposit.
  • TDS is deducted at source on interest if the interest amount is more than Rs 10,000/- p.a.

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