Interest on PPF, small savings cut

The government has reduced interest rates by 0.1 percentage point – or 10 basis points – on various small savings schemes across the board, except the post office savings account which remains untouched.

A finance ministry announcement said the revised rates of interest were for the first quarter of the financial year 2017-18.  For April-June, the rates have been lowered by 0.1 percentage point, compared to January-March. However, interest on savings deposits has been retained at 4% annually.

Since last April, interest rates on all small saving schemes have been recalibrated on a quarterly basis. The savings schemes include public provident fund (PPF), Kisan Vikas Patra and Sukanya Samriddhi scheme.

The current revision of rates reflects the government’s commitment to calibrated reform in the financial sector to ensure better interest rate transmission, according to the announcement.

To cut rates
In effect, the move would prompt banks to cut their deposit rates. The announcement said the government continues to accord highest priority to the interests of small savers, especially savings for the benefit of the girl child, senior citizens and the regular savers who form the backbone of the country’s savings architecture.

Many small savings schemes will continue to be very attractive compared to bank deposits with similar maturity periods even after this marginal reduction in interest rates, the government said. Apart from offering higher interest rates compared to bank deposits, some of the small savings schemes enjoy income tax benefits.  

Further, small savings schemes like Senior Citizens Savings Scheme (SCSS), Sukanya Samriddhi Account (SSA), PPF, Five-Year National Savings Certificate (NSC), Five-Year Monthly Income Scheme (MIS) and Five-Year Time Deposits (TD) enjoy additional interest rate spreads. 

This additional interest rate spread is 100 basis points on Senior Citizen Savings Scheme, 75 basis points on Sukanya Samriddhi Account and 25 basis points on PPF, five-year NSC, five-year MIS and five-year TD, the announcement added.