Interest rates on popular small savings schemes to be reset every quarter
Posted on: 25/Jan/2016 2:12:56 PM
Popular small savings schemes such as Public Provident Fund (PPF), National Savings Certificate (NSC) and the Kisan Vikas Patra were launched to motivate savings amongst the people. Interest rates on popular small savings schemes such as Public Provident Fund (PPF), National Savings Certificate (NSC) and the Kisan Vikas Patra could soon be reset every quarter as part of the government`s plan to peg them closer to market rates to reduce market distortions and help the cause of lower interest rates.
There will be income tax rebate for those who join this savings scheme. Hence salaried employees and businessmen who have high income are investing in these schemes. The interest rates for these investments are calculated on yearly basis. Now interest rates on popular small savings schemes such as Public Provident Fund (PPF), National Savings Certificate (NSC) and the Kisan Vikas Patra could soon be reset every quarter as part of the government`s plan. This is being done to to peg them closer to market rates to reduce market distortions and help the cause of lower interest rates.
For example, banks offers 7 per cent on deposits of maturity of five years or more. Deposits of such tenure fetch 8.5 per cent in a post office small savings account. The PPF rate for a similar maturity is 8.7 per cent. This wide gap between small savings and market rates impacts deposit mobilization by banks as their ability to reduce deposit rates is adversely impacted. This impacts banks ability to lower lending rates as well.
The first reset under the new rules will happen from April 1 this year and rates are expected to fall. A notification will be issued soon. Interest rates on schemes for senior citizens and a scheme for girl children were not likely to be revised.
