Interest rates on small savings to go up by 20-50 basis points from 1 April

The government today announced an across-the-board increase in interest rates on small saving schemes such as post office time deposits, national saving certificates (NSC) and public provident fund (PPF).

A finance ministry announcement today said the increases in interest rates, varying from 0.20 percentage points to 0.50 percentage points, would be applicable for the 2012-13 financial year.

Accordingly, the new rates on small savings (except 5-year senior citizen saving schemes) would be in the range of 8.2 to 8.9 per cent.

The rates have been revised on the basis of the change in the rates on government securities (G-Sec), following recommendations made by the Shyamala Gopinath Committee.

One-year time deposits will gain by the maximum 0.50 percentage points, while interest rates on NSC and PPF deposits will go up by 20 basis points. There will be no change in savings deposit rates without any fixed maturity.

Low interest rates have been the bane of small saving schemes and despite tax incentives, they have not found favour with investors. The proposed increase in interest rates is expected to revive investor preference for tax-saving small deposit schemes.

However, rates on the small savings will continue to be lower than interest rate on bank deposits. The average rate on bank deposits of varying maturities is 8.5 to 9.25 per cent.

The finance ministry expects the increase in interest rates to trim outflows from small deposit schemes to Rs1,200 crore in 2012-13 from over Rs10,000 crore in 2011-12.