Interest rates on PPF and other small savings schemes reduced drastically

Interest rate on PPF and other small savings schemes like Kisan Vikas Patra (KVP), Sukanya Samriddhi Account, Senior citizens savings scheme, etc. have been reduced drastically from April 1, 2016 as the government has decided to shift to a lower overall interest rate regime.

In case of PPF, interest rate will be 8.1% from April 1 to June 30, down from the earlier 8.7%. Sukanya Samriddhi Account will have a interest rate of 8.6 % as against the earlier 9.2 %.

Scheme New Rate (%) Previous Rate (%)
PPF 8.1 8.7
Sukanya Samriddhi Account 8.6 9.2
Kisan Vikas Patra 7.8 8.7
National Savings Certificate (5 yrs) 8.1 8.5
Senior citizens savings scheme (5 yrs) 8.6 9.3
Post Office Deposit (5 yrs) 7.9 8.5
Post Office Deposit (1 yr) 7.1 8.4

However, the government has decided to revise the interest rates of all small saving schemes on a quarterly basis starting from April 1, 2016. The rates shown above are applicable for the 1st quarter of the financial year 2016-17. The new rates for 2nd quarter will be announced on 15th June, 2016.

Reason for the cut
For long, banks and RBI had urged the government to reduce small savings rates to ensure that banks cut deposit rates. The small savings interest rates are perceived to limit the banking sector’s ability to lower deposit rates. The rate cuts are expected to help the economy move to a lower overall interest rate regime eventually which would mean lower loan rates and lower EMIs in the coming months.

The interest rate on small saving schemes will remain unchanged for the July-September quarter of the 2016-17 financial year. The Rates of interest will be same as above w.e.f. 01-July-2016 to 30-Sep-2016.

Category: finance