Tuesday, March 27, 2012

Interest Rates up on NSC, PPF, Post Office Deposits

Government has announced higher interest rates in small savings schemes by up to 0.5%. The savings rate will remain unchanged at 4%. The small savings schemes had been seeing net outflow in recent years as the rate was lot less than other fixed income instruments. According to the union budget estimates, there is likely to be a net outflow of Rs 12,000 crore from small savings schemes in the current fiscal. So, the government announced adjustments in the rates in line with higher market rates on the recommendations of the Shyamala Gopinath Committee for Comprehensive Review of National Small Savings Fund (NSSF).

Impact on National Savings Certificates (NSC):

The National Savings Certificates (NSC) having maturity of five and ten years will now attract 8.6% and 8.9%, respectively, up 0.2% each.

Impact on Public Provident Fund (PPF):

The Public Provident Fund (PPF) will fetch 8.8%, up 0.2%.

Impact on Post office deposits:

Interest rates on time deposits of one and two years have been increased by 0.5% each to 8.2% and 8.3% respectively, while rates for popular MIS has been hiked by 0.3% to 8.5%. Interest rate for three-year time deposits has been increased from 8% to 8.4%. Similarly, interest rate on five-year time deposit has been raised from 8.3% to and 8.5%. The five-year recurring deposits will fetch an interest of 8.4% as against 8% at present. The rate for senior citizens savings scheme (SCSS) has been hiked to 9.3% from 9%.

Validity:

The new rates will be effective from April 1, 2012 and will remain valid during 2012-13.

The government had raised interest rates on these schemes in November, 2011, just 5 months back. The panel had advised the government to link interest rates on small savings to market rates. It had asked the government to notify interest rates afresh at the beginning of every financial year based on the average yields on government securities of similar maturity with a positive rate spread of 25 basis points. Yield on the benchmark government year bond ranged from 7.8% to 8.97% in the calendar year 2011 leading to upward revision in the interest rates on savings deposits.

The interest rate in these schemes are still lower than 5 year bank fixed deposit but they are still considered safer investments, especially by senior citizens. The higher interest rates in these popular tax saving schemes will make them very attractive for investors who would get higher return and save tax at the same time.


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