Govt hikes interest rates on PPF, NSC and other small savings by 30-40 bps

The government has raised interest rates on small savings schemes, including Public Provident Fund (PPF), National Savings Certificate (NSC) and Post Office Deposit Scheme, between 30 and 40 basis points, in a bid to make these attractive to investors.

Accordingly, PPF and NSC will earn interest at 8 per cent while Senior Citizens Savings Scheme, which has a tenure of five years, will fetch 8.7 per cent.
This is against the 6.85 per cent that SBI, the country’s largest bank, offers on deposits of five years and up to 10 years, while for senior citizens it is 7.35 per cent. 
On savings accounts, most banks offer 3.5 per cent interest. Post office savings account fetches 4 per cent.
Interest rates on the small savings schemes are reviewed before the end of every quarter and accordingly new rates are announced for the next quarter. 
A panel headed by former RBI deputy governor Shyamala Gopinath had recommend bringing interest rates on small savings schemes on a par with market rates for government bonds of similar maturities with certain spread which will be maximum for Senior Citizen Saving Scheme. 
Since yield on 10 year government bonds have gone up, interest rates on small savings have been revised upward. Many of these schemes offer tax benefit under the Income-Tax Act which is why these schemes are popular among salaried people. Another benefit is that one does not have to pay any tax even on withdrawal from Public Provident Fund (PPF) after maturity.
With the latest revision, money accumulated till 30 September will get interest rate at existing rates while fresh deposit between 1 October and 31 December will get higher interest. 
Fresh accounts opened under Kisan Vikas Patra during this three month period will take less time to mature and money will double in 9 years and 4 months as against 9 years and 10 months for accounts opened till 30 September.