Saving grace in time of inflation
There is good news for small savers: the government on Friday raised interest rates on post office savings and the public provident fund.
The interest rate paid on a post office savings account has been increased from 3.5 per cent to four per cent per annum. The interest rate on your Public Provident Fund (PPF) account has been raised to 8.6 per cent from the current eight per cent. The annual amount that can be invested in PPF to save tax has been increased from `70,000 per year to `1 lakh while the Kisan Vikas Patras (KVPs) has been discontinued.
Interest rates on all fixed deposits with the post office have been hiked. The maximum increase was on the one-year time deposit with the rate revised to 7.7 per cent from 6.25 per cent.
The maturity period for the Monthly Income Scheme (MIS) and National Savings Certificates (NSC) will be reduced from six years to five years. A new NSC instrument, with a maturity period of 10 years, will be introduced. The MIS will now earn 8.2 per cent interest as compared to eight per cent. However, the five per cent bonus paid on maturity of MIS has been discontinued. The five-year NSC will fetch you interest at 8.4 per cent from eight per cent offered under older NSCs of six-year maturity. The new 10-year NSC will earn interest at 8.7 per cent.
The government was forced to quicken a decision on the Shyamala Gopinath Committee report on small savings, submitted in June, as there was a fall in national small saving funds (NSSF) this year. Due to this the Centre has to borrow an additional `52,800 crore from the market in the second half of the fiscal year. The step comes soon after the RBI deregulated interest rates on savings accounts in October. There was also a need to hike interest rates on small savings as inflation has been high for some time, adversely affecting the real savings of people.
The payment of commission on PPF schemes (one per cent) and the Senior Citizens Savings Scheme (0.5 per cent) has been discontinued. It would be costlier to obtain loans from savings under these as interest on loans obtained from PPF will be increased to two per cent from the existing one per cent per annum.
The rate of interest on small savings schemes will be aligned with government securities rates of similar maturity with a spread of 25 basis points, with some exceptions.
The agency commission under all other schemes (except MPKBY agents) will be reduced from the existing one per cent to 0.5 per cent. Commission at the existing four per cent will continue for Mahila Pradhan Kshetriya Bachat Yojana (MPKBY) agents.
The liquidity of the Post Office Time Deposit — one, two, three and five years — has been improved by allowing premature withdrawal at a rate of interest one per cent less than time deposits of comparable maturity. For premature withdrawals between six and 12 months of investment, the post office savings account rate of interest will be paid.
The new rates will be applicable from the date of notification. These decisions have the approval of Union finance minister Pranab Mukherjee.
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