Govt slashes interest rates on small saving schemes like PPF by 0.1%

The government has lowered interest rates on small saving schemes like PPF, Kisan Vikas Patra and Sukanya Samriddhi scheme by 0.1% for the April-June quarter, a move that would prompt banks to cut their deposit rates.

For April-June, these have been lowered by 0.1% across the board compared to January-March. However, interest on savings deposits has been retained at 4% annually. Since April last year, interest rates of all small saving schemes have been recalibrated on a quarterly basis.

A finance ministry notification said investments in the public provident fund (PPF) scheme will fetch lower annual rate of 7.9%, the same as 5-year National Savings Certificate. The existing rate for these two schemes is 8%.

Kisan Vikas Patra (KVP) investments will yield 7.6% and mature in 112 months.

The one for girl child savings, Sukanya Samriddhi Account Scheme, will offer 8.4% annually, from 8.5% at present, while it will be the same at 8.4% for the 5-year Senior Citizens Savings Scheme. The interest rate on the senior citizens scheme is paid quarterly.

Term deposits of 1-5 years will fetch a lower 6.9-7.7% that will be paid quarterly while the 5-year recurring deposit has been pegged lower at 7.2%. "On the basis of the decision of the government, interest rates for small savings schemes are to be notified on a quarterly basis," the ministry said while notifying the rates for the fourth quarter of 2016-17 starting from April 1, 2017.

While announcing the quarterly setting of interest rates, the ministry had said the rates of small saving schemes would be linked to government bond yields.

The move is expected to prompt banks to lower the deposit rate in line with the small savings rate as offered by the government.