Latest update on Small Savings Scheme: Last announcement (19.6.2016), next announcement in September 2016.
The Finance Ministry in a statement on June 19, 2016, said that interest rate on small savings scheme for the quarter July-October 2016 has been kept unchanged.
The current rate of interest on the following instruments is as under.
Interest rate on five-year senior citizens savings scheme is 8.6 % p.a
Interest rate on five-year recurring deposit is 7.4% p.a
Interest rate on one-year deposits @ 7.1%
Interest rate on two-year time deposits @ 7.2%
Interest rate on three-year time deposit @ 7.4% p.a
and for five-year time deposit@ 7.9 % p.a
Public Provident Fund Scheme earns an interest rate of 8.1% p.a
Kisan Vikas Patra 7.8 % p.a (maturity period of 110 months).
The interest rate on Sukanya Samriddhi Account Scheme is 8.6% p.a
The rates of interest on small savings were earlier bench- marked annually on the basis of prevailing market rates of Government Securities.The compounding of interest, which is currently done on half yearly rest for 5-year National Saving Certificates, 10-year National Saving Certificates, and KVPs, will be done on an annual basis with effect from April 1, 2016. The change in the compounding of interest from half yearly to annually would effectively reduce the interest rate of these instruments.
EPF to fetch more interest and premature closure of PPF allowed
The Employees’ Provident Fund Organisation (EPFO) raised the interest rate on provident fund from 8.75% to 8.8% for 2015-16 which is highest since 2010-11. The interest rate on PPF (8.70%) remains unchanged. Government in its statements has communictated that it would allow the premature closure of PPF accounts in genuine cases, such as cases of serious ailment, higher education of children, etc. However, such a closure will be permitted with a penalty of a 1 per cent reduction in the interest payable on the whole deposit and will be applicable only for accounts having completed five years from the date of opening.
Government Announcement on 16.02.2016 :Interest rate cut on certain Small Saving Schemes
However, the finance ministry statement announced a 25 basis points reduction in post ofice savings of 1, 2 and 3 year term deposits, 5 year recurring deposits and Kisan Vikas Patra for the next financial year.Post office savings of 1, 2 and 3 year term deposits and 5-year recurring deposits currently earn interest of 8.4 per cent per annum. The Kisan Vikas Patras (KVPs) earns interest rate of 8.7 per cent per annum. Following the reduction in interest rate announced on Tuesday (16.02.2016) the above small saving schemes will earn 8.15 percent and 8.45 percent respectively subject to change on review at every quarter. The rates of interest on small savings were earlier bench marked annually on the basis of prevailing market rates of Government Securities.
Interest on Long Term Savings remains unchanged
The returns on Sukanya Samriddhi Yojana, the Senior Citizen Savings Scheme, and the Monthly Income Scheme left untouched for the time being but they would also face a quarterly reset with effect from April 1, 2016. At present, these schemes enjoy higher BPS (basis points) spread over Government Securities i.e.Sukanya Samriddhi Yojana with 75 BPS spread, the Senior Citizen Savings Scheme with 100 BPS spread and the Monthly Income Scheme with 25 BPS spread will currently continue to enjoy a higher return than government securities.
Change in compounding of interest on NSCs and KVPs
The compounding of interest, which is currently done on half yearly rest for 5-year National Saving Certificates, 10-year National Saving Certificates, and KVPs, will be done on an annual basis with effect from April 1, 2016. The change in the compounding of interest from half yearly to annually would effectively reduce the interest rate of these instruments.
The Finance Ministry said in a statement that rates of interest applicable to the various small savings schemes for the April-June quarter will be notified in March, and the same will be reviewed in June, September and December every year. The ministry said making National Saving Schemes market-oriented is in the context of easing the transmission of the lower interest rates in the economy while protecting their social goals and promoting long-term savings.