Interest rates on post office saving schemes increased

Agencies

New Delhi, 12 November 2011:  Investments in small savings in Post Offices will now fetch investors more, with the Union government on Friday deciding to rationalise schemes in these and to align the rate of interest with government maturities. The rate of interest on the Public Provident Fund (PPF) is proposed to be increased to 8.6 per cent from the present eight per cent and the annual ceiling on investment under the scheme to be increased from Rs 70,000 to Rs 1 lakh. The decision take effect with effect from December 1.

 

In line with deregulation of the rate of interest on banks’ savings deposits, the interest rate on post office savings accounts is top be be raised from the present 3.5 per cent to four per cent. The rates on time deposits, recurring deposits and National Savings Certificates (NSC) will also go up, with a new 10-year NSC offering as high as 8.7 per cent per annum. Kisan Vikas Patras are to be discontinued.

 

The rate of interest on small savings schemes will be aligned with G-sec rates of similar maturity, with a spread of 25 basis points (bps), with two exceptions. The spread on 10-year NSC will be 50 bps and on Senior Citizens Savings Scheme, 100 bps. The interest rates for every financial year will be notified before April 1,” the finance ministry said on Friday.

The decisions were taken on the recommendation of a committee set up in July 2010 for a comprehensive review of the National Small Savings Fund (NSSF). The panel, headed by former Reserve Bank of India deputy governor Shyamala Gopinath, gave its report this June.

 

The maturity period for Monthly Income Scheme (MIS) and NSC will be reduced from six years to five years. Interest on loans obtained from the PPF will be increased to two per cent per annum from the existing one per cent. Liquidity of the Post Office Time Deposit, with maturities of one year to five years, will be improved by allowing premature withdrawal at a rate of one per cent less than time deposits of comparable maturity. Payment of five per cent bonus on maturity of MIS will be discontinued.

 

Payment of one per cent commission on PPF schemes and 0.5 per cent on the Senior Citizens Savings Scheme will be discontinued. Agency commission under all other schemes will be reduced from the existing one per cent to 0.5 per cent.

 

The minimum share of states in net small savings collections in a year, for investment in state government securities, will be reduced from 80 per cent to 50 per cent. The remaining amount will be invested in central government securities or lent to other willing states or in securities issued by infrastructure companies/agencies wholly owned by the Centre.

 

Yearly repayment of NSSF loans made by the Centre and the states are to be reinvested in central and state government securities in a 50:50 ratio. The period of repayment of NSSF loans by the Centre and states will be reduced to 10 years, with no moratorium.

 

For the current financial year, the prevailing interest rate of 9.5 per cent will continue. From April 1, 2012, a revised interest rate will be notified.