No change in PPF, NSC rates

Ahead of the announcement of the general election dates, the Finance Ministry has raised interest rates on some of the small savings scheme.

However, there is no change in interest rates on five years National Saving Certificates (NSC) and Public Provident Fund.

The new rates will be applicable from April 1.

Any fresh deposit or accretion in the existing ones on or after April 1 will enjoy the benefit of new rates.

According to the Finance Ministry statement, interest rates on 1-, 2-, and 3-year term deposits will now be 8.4 per cent as against 8.2, 8.2 and 8.3 per cent respectively.

Similarly, 5-year term deposits will now have 8.5 per cent rate of interest against 8.4 per cent currently.

Interest rate on 5 years recurring has also been revised. Investment in 10-year NSC on or after April 1 will earn you 8.8 per cent rate as against 8.7 per cent.

Despite revision in the interest rate, small savings are still less attractive than bank deposits, despite the benefit of tax saving. It means money deposited in one or various schemes of up to ₹1 lakh will be deducted from total taxable income.

In this way, the effective rates on returns on small savings are higher than bank deposits except 5-year tax savings bank deposits.

Interest rates on small savings are aligned with Government securities of similar maturities with a spread of 25 basis points with two exceptions.

The spread on 10-year NSC (new instrument) will be 50 basis points and on Senior Citizens Savings Scheme 100 basis points. The Government has retained the GPF interest rate at 8.7 per cent.

These recommendations are based on the Shyamala Gopinath Committee.

(This article was published on March 4, 2014)
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