Interest rate on PPF cut to 8.1%; sr citizens to get less
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Interest rate on PPF cut to 8.1%; sr citizens to get less

 PTI   
  • March 21, 2016  
  • |  
  • UPDATED   10:41 IST

 In a move that will hit common man, the government today slashed interest rates on all small savings schemes, including PPF, Kisan Vikas Patra (KVP) and senior citizen deposits, to make them more market aligned. Interest rate on Public Provident Fund (PPF) scheme has been cut to 8.1 per cent for the period April 1 to June 30, from 8.7 per cent, at present.

Similarly, the interest rate on KVP will be reduced to 7.8 per cent from 8.7 per cent while senior citizen savings scheme of five years would earn 8.6 per cent interest compared with 9.3 per cent. Girl-child saving scheme, Sukanya Samriddhi Account will see interest rate of 8.6 per cent as against 9.2 per cent, according to a Finance Ministry order.

Terming the decision slashing of interest rates as a "normal exercise of resetting" rates in March every year, Economic Affairs Secretary Shaktikanta Das said, "this will enable banks to consequently reduce their deposit rates and extend loan and credit to public and borrowers at lower rates."

However, unlike previous years when interest rates were set for the full year, the government will from now on set interest rates every quarter based on previous three-month yields on Government-Securities or G-Sec. While the interest rate on Post Office savings has been retained at 4 per cent, the same for term deposits of one to five years has been cut.

The popular Five-Year National Savings Certificates will earn an interest rate of 8.1 per cent from April 1 as against 8.5 per cent, at present.

A five-year Monthly Income Account will fetch 7.8 per cent as opposed to 8.4 per cent now. "This is being done to make small saving interest rates more market linked and more market aligned," Das told reporters. Asked when banks will cut rates, he said, "Banks will have to decide on their own. Government has given signals to them. It is for the banks to take decision and move forward."

Post Office term deposits of one, two and three years command an interest rate of 8.4 per cent but from April 1, a one-year Time Deposit will get 7.1 per cent, two-year Time Deposit will earn 7.2 per cent and 3-Year Time Deposit will attract interest of 7.4 per cent.

Five-year time deposit will fetch 7.9 per cent interest in the first quarter as against 8.5 per cent while the same on five-year recurring deposit has been slashed to 7.4 per cent from 8.4 per cent.