Post office savings deposit interest hiked

In a bid to lure millions of small savers who had exited the National Small Savings Fund (NSSF) schemes in pursuit of higher returns, the government on Friday raised the interest rates on post office savings account (POSA), time deposit schemes of various tenures, monthly income scheme (MIS) and Public Provident Fund (PPF).

According to a Finance Ministry statement here, while the interest rate on POSA stands increased to 4 per cent from 3.5 per cent for the current fiscal, deposits in schemes such as MIS and PPF will fetch attractive returns of 8.2 per cent and 8.6 per cent respectively, as compared to the existing interest rates of 8 per cent.

While all time maturities will fetch significantly better returns by way of higher interest rates than hitherto, the biggest gainer is set to be the one-year fixed deposit scheme with its interest rate pegged at 7.7 per cent as compared to the prevailing 6.25 per cent.

TO BE NOTIFIED SOON

As per the decision approved by Finance Minister Pranab Mukherjee, the new rates are to be made applicable from the date of notification to be announced soon.

The move to make the small savings schemes more attractive and align them with current market rates is in line with the recommendations of the Shyamala Gopinath Committee, which was set up to look into the matter, as was advised by the 13th Finance Commission.

NEW NSC INSTRUMENT

Alongside, however, the government has decided to discontinue the Kisan Vikas Patra (KVP) scheme. It has also reduced the maturity period for MIS and National Savings Certificate (NSC) schemes to five years from the existing six years and has introduced a new 10-year NSC instrument with its interest rate pegged at 8.7%.

LIMIT INCREASED

Another bonanza for small savers is that the annual investment ceiling in PPF savings accounts has been raised to Rs. 1 lakh from the current limit of Rs. 70,000.

At the same time, what may irk investors is that loans against such savings would be at a higher interest rate of 2 per cent as against 1 per cent at present.

BONUS SCRAPPED

The government has also scrapped the 5 per cent bonus on maturity of MIS schemes and abolished the commission for agents on PPF and Senior Citizens Savings Schemes.

(originally published in the newspaper The Hindu)