Govt slashes interest rates on small savings schemes like PPF, KVP

Interest on savings deposits has been retained at 4% annually

The government has lowered interest rate on small saving schemes like PPF, Kisan Vikas Patra and Sukanya Samriddhi by 0.1 per cent for the July- September quarter, a move that will prompt banks to lower deposit rates.

The rates have been lowered by 0.1 per cent across the board compared to the April-June quarter. However, interest on savings deposits has been retained at four per cent annually.

Since April last year, interest rates of all small saving schemes have been recalibrated on a quarterly basis.

A finance ministry notification said investments in the public provident fund (PPF) scheme will fetch lower annual rate of 7.8 per cent.

Kisan Vikas Patra (KVP) investments will yield 7.5 per cent and mature in 115 months.

The one for girl child savings, Sukanya Samriddhi Account Scheme, will offer 8.3 per cent annually, from 8.4 per cent at present.

The investment on 5-year Senior Citizens Savings Scheme will yield 8.3 per cent. The interest rate on the senior citizens scheme is paid quarterly.

Term deposits of 1-5 years will fetch a lower 6.8-7.6 per cent that will be paid quarterly while the 5-year recurring deposit has been pegged lower at 7.1 per cent.

"On the basis of the decision of the government, interest rates for small savings schemes are to be notified on a quarterly basis," the ministry said while notifying the rates for second quarter of the financial year 2017-18.

While announcing the quarterly setting of interest rates, the ministry had said the rates of small saving schemes would be linked to government bond yields.

The move is expected to prompt banks to lower the deposit rate in line with the small savings rate as offered by the government.