New Interest Rate of PPF, NSC, KVP, SCSS, SSA and Post Office Deposits

The interest rate cut of small saving schemes (PPF, NSC, SCSS, SSA, KVP etc) is sharp. This interest rate cut was expected but never to such extent. The popular saving scheme PPF would give less than 0.6% interest. The biggest rate cut is for one-year post office time deposit. It is 1.3%.

The interest rate cut was indispensable because it was stopping the banks to reduce the interest rate on a loan. To compete with the post office’ small saving schemes, the banks did not reduce the deposit rates. Therefore, the lending rate also remained higher.

Quarterly Interest Rate Fixation

The government would fix the interest rate of small saving scheme every quarter. The recent announcement of interest rate is for April 2016- June 2016. This flexibility would give government more scope to influence the deposit rates of the banks. Till now it is fixed for every financial year.

Changed Interest rate of PPF, SSA, SCSS and NSC

Interest Rate Fixation Method

The interest rates of government small saving scheme are linked to the yield of the government bonds.

The yield of government bond for previous 3 months would decide the interest rate of small saving schemes for next 3 months. The interest rate of small saving scheme during April 1, 2016 – June 30, 2016, was decided by the G-sec yield during Dec 1, 2015- Feb 29, 2016.

The interest rate of the different small saving scheme is based on different government security. For a saving scheme, the corresponding government scheme should be of the same period. For 1-year time deposit, the government bond should be of 1 year. For 5 year NSC interest rate, the corresponding government bond should have 5 years to mature.

However, the government does not give the interest rate equal to the bond yield. Rather, It gives much more interest than the corresponding bond yield. For example, the PPF account gives 0.25% more interest rate than the 10-year government bond yield. The following table shows the extra interest rate to the small saving scheme in comparison to the benchmark government bond.

Extra Interest Rate on Government Saving Scheme

By adopting this method the government always gives more than the market rate on small saving schemes.

New Interest Rate of PPF

Public Provident Fund is the most popular government saving scheme. Traditionally it has given a better return than the bank deposit. Along with this PPF is backed by the government. But This revision in the interest rate has made it less attractive. Since last few years, the interest rate of PPF was around 8.5 -9.0%. But this sharp cut has dragged it to the 8.0% range. The interest rate of PPF for the financial year 2016-17 is now 8.1%. Earlier it was decent 8.7%. After the rate cut, there seems a big difference of interest rate between EPF and PPF. The interest rate of EPF is 8.8%. However, this rate is for FY 2015-16.

New Interest Rate of Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is the most rewarding small saving scheme after the Senior citizen saving scheme. The interest rate of 9.2% was very lucrative. But the interest rate of SSA has also come down to the 8.6%. Still it is way above the PPF and other post offices savings. Sukanya Samriddhi Scheme is a saving plan for girl child.

Latest Interest Rate of Senior Citizen Saving Scheme

Senior citizen saving scheme gives highest interest rate among all the small saving schemes. This scheme is only for the senior citizens. But now senior citizens have to be satisfied with a slightly low interest rate. From the interest rate of 9.3%, it came down to the 8.6%. It is a 0.7% cut.

Recent Rate of National Saving Certificate

The popular post office saving scheme NSC has also become less attractive. The NSC now give 0.4% less interest rate. The 5-year National saving certificate has the interest rate of 8.1%. Few months back the government has discontinued the 10-year NSC. The national saving certificate also gives tax benefit under section 80C of the income tax act.