Govt leaves interest rate on small-saving schemes unchanged

The Finance Ministry on Friday said that it has decided to keep the interest rate unchanged on small savings schemes for the three-month period beginning April 1.

The announcement covers small-saving schemes such as the Post Office Saving Accounts, Post Office Time Deposits, the National Saving Certificates (NSC), the Public Provident Fund (PPF), the Kisan Vikas Patra (KVP) and Sukanya Samriddhi.

Normally, one can participate in these schemes through post offices; however, many banks offer the PPF account facility. The popularity of these schemes among the salaried class can be attributed to the tax benefit they offer. Though there has been no change in the interest rate, these schemes still offer higher returns compared to bank deposits.

The unchanged interest rate means the NSC (5 years) and the PPF (15 years) will fetch 8 per cent interest, while money deposited in KVP will double in little over nine years . At the same time, if one is parking money in a fixed deposit with a maturity of five years with the State Bank of India, he/she will get 6.85 per cent. Senior citizens will get half a per cent more: 7.35 per cent.

Based on the recommendations of the Shyamala Gopinath panel, interest rates on these schemes are reviewed before the end of every quarter, and accordingly, new rates are announced for the next quarter.

In an effort to reflect the market trend, the rates are aligned with those on government bonds of similar maturities with certain spread, which will be maximum for the senior citizen saving scheme.

Though the yield on 10-year government bonds have come down, lowering the rate during the election season might prove costly. This explains the Finance Ministry’s decision to keep the rates unchanged.