The government today reduced the interest rate on Public the Provident Fund (PPF) from 8.8 per cent to 8.7 per cent. The new rate will come into effect from April 1.
It also lowered the rate on other small savings schemes, with maturity of two years or more, by 10 basis points. This includes fixed deposits (FD) and recurring deposits (RD), as well as National Savings Certificates (NSC).
A one-year time deposit will now fetch the investors an interest at the rate of 8.2 per cent, against 8.3 per cent earlier. Five-year NSC and 10-year NSC will give a rate of return of 8.5 per cent and 8.9 per cent, respectively. The senior citizens savings scheme will offer the highest rate of interest at 9.2 per cent.
Monthly Income Schemes of five-year maturity will earn an interest of 8.4 per cent. Interest on savings deposit and one-year term deposit remains unchanged at 4 per cent and 8.2 per cent, respectively.
Based on the decisions taken by the government on the recommendations of the Shyamala Gopinath Committee for Comprehensive Review of National Small Savings Fund, the interest rates for small saving schemes are to be notified every financial year, before April 1 of that year. The committee had recommended benchmarking small savings returns with the market rate.
Planning Commission Deputy Chairman Montek Singh Ahluwalia justified the move saying the returns remain favourable to depositors in real terms, as inflation is lower than it was two years ago.
“I don't believe that interest rate for savers through the post office system can be delinked completely from the interest rate system in the country. If you want low rate environment, you cannot say, ‘I want higher interest rate for savers and low interest rate for borrowers’. They have probably moderated a little bit in line with the softening of interest rates,” Ahluwalia said on the sidelines of the Skoch summit.
The Reserve Bank of India cut the repo rate by 25 basis points in its last monetary policy review.