Interest on small savings hiked after years

After a gap of several years, the government has raised interest on small savings, including NSC and PPF, by up to 0.4 per cent for the October-December quarter, in line with rising deposit rates in the banks. 

The move, Finance Minister Arun Jaitley said in a tweet is aimed at supporting small savers as the interest rates for small savings scheme have been increased by 0.3-0.4 per cent for the third quarter of this year. 

In another tweet he said, it will "promote welfare of the girl child and improve financial security of the elderly. The government, from 1st October, has increased returns on Sukanya Samridhi Yojana from 8.1 per cent to 8.5 per cent, and on Senior Citizens Savings Scheme from 8.3 per cent to 8.7 per cent". 

The interest rate on almost all small saving schemes have been declining since April 1, 2012. 

As per the finance ministry notification, the interest rate on popular Public Provident Fund has been increased to 8 per cent for the third quarter from 7.6 per cent. 

The interest rate on PPF deposits was as high as 8.8 per cent on April 1, 2012. Since then it declined gradually. PPF deposits are exempt from income tax. 

Kisan Vikas Patra will now yield interest rate of 7.7 per cent as against 7.3 per cent earlier. Now, with hike of 0.4 per cent hike in interest rate, deposits in the form of KVP will mature in 112 months compared to 118 earlier. 

Interest rate for the five-year term deposit, recurring deposit Senior Citizens Savings Scheme has been raised to 7.8, 7.3 and 8.7 per cent, respectively. The interest on the senior citizens' scheme is paid quarterly. 

However, interest on savings deposits has been retained at 4 per cent, annually. 

The girl child savings scheme Sukanya Samriddhi account will earn higher interest rate of 8.5 per cent rate, 0.4 per cent more then the current rate. The interest rate on deposits under this scheme introduced by the NDA government attracted 9.2 per cent interest in April 2015. 

The notification further showed that term deposits of one-three years will fetch 0.3 per cent higher interest rate. 

While announcing the quarterly setting of interest rates in 2016, the finance ministry had said that rates of small savings schemes would be linked to government bond yields. The move is expected to see banks lowering their deposit rates in line with the small savings rate offered by the government. 

Illustration: Uttam Ghosh/Rediff.com.