Govt cuts interest rate on small savings by 0.1% for April-June quarter

The union government has announced revised rates of interest on various small savings schemes, including PPF, Kisan Vikas Patra and Sukanya Samriddhi scheme, for the first quarter of the financial year 2017-18, in order to bring such rates closer to market rates.

Effective 1 April 2017, interest rates on small savings deposits will see a reduction of 0.1 percentage points (10 basis points) across the board in all the schemes except the Post Office Savings Account, which has been left untouched.

For April-June, these have been lowered by 0.1 per cent across the board compared to January-March. However, interest rate on savings deposits has been retained at 4 per cent annually.

Since April last year, interest rates of all small saving schemes have been recalibrated on a quarterly basis. For the January-March quarter, these have been kept unchanged compared with the October-December quarter.

A finance ministry notification said investments in the Public Provident Fund (PPF) scheme will attract a lower annual rate of 7.9 per cent, the same as the 5-year National Savings Certificate. The existing rate for these two schemes is 8 per cent.

Kisan Vikas Patra (KVP) investments will yield 7.6 per cent and mature in 112 months.

Interest rate for girl child savings, Sukanya Samriddhi Account Scheme, will offer 8.4 per cent annually against 8.5 per cent at present, while it will be the same at 8.4 per cent for the 5-year Senior Citizens Savings Scheme. The interest rate on the senior citizens scheme is paid quarterly.

Term deposits of 1-5 years will fetch a lower 6.9-7.7 per cent interest and that will be paid quarterly while the interest rate on 5-year recurring deposit has been pegged lower at 7.2 per cent.

A finance ministry release, however, said the government continues to accord highest priority to small savings, especially savings for the benefit of the girl child, the senior citizens and the regular savers who form the backbone of the savings architecture.

''The current revision of rates is reflective of the government's commitment to calibrated reform in the financial sector to ensure better interest rate transmission,'' the release said.

Despite the marginal reduction in interest rates, the government expects the various small saving schemes to continue to be very attractive compared to bank deposits of similar maturities.

Apart from offering higher interest rates compared to bank deposits, some of the small saving schemes also enjoy income tax benefits.

Further, small saving schemes like Senior Citizens Savings Scheme (SCSS), Sukanya Samriddhi Account (SSA), PPF, 5 year National Savings Certificate (NSC), 5 year Monthly Income Scheme (MIS) and 5 year Time Deposits (TD) enjoy additional interest rate spreads.

This additional interest rate spread is 100 basis points in the case of Senior Citizen Savings Scheme, 75 basis points in Sukanya Samriddhi Account and 25 basis points spread in PPF, 5 year NSC, 5 year MIS and 5 year TD.