Interest Rates on Post Office-operated Small Savings raised by 0.5 per cent

The Union government on 26 March 2012 raised interest rates on post office-operated small savings like Monthly Income Scheme (MIS) and Public Provident Fund (PPF) by up to 0.5%. Interest rates on time deposits of one and two years were increased by 0.5% each to 8.2% and 8.3% respectively, while rates for popular MIS were increased by 0.3% to 8.5%.

The new rates will be effective from 1 April 2012 and will remain valid during 2012-13.

The government as part of economic liberalisation process had freed the interest rates on banks deposits giving freedom to lenders to fix rates depending upon the asset-liability position. It had however continued to fix rates for small savings schemes.
The measure adopted by the government helped to make the small savings more attractive to investors. The attractiveness of the small savings schemes vis-a-vis fixed deposit schemes operated by banks will thus be maintained.

The revised interest rates are as follows:

• Interest rate on PPF was increased by 0.2% to 8.8%.
• Savings deposit rate remain unchanged at 4%. The interest rate in savings bank accounts - the rates for time deposits of one and two years stand increased by 50 basis points each to 8.2 per cent and 8.3 per cent, respectively.
• Interest rate for three-year time deposits increased from 8% to 8.4%. Similarly, interest rate on five-year time deposit has been raised from 8.3% to and 8.5%.
• Five-year recurring deposits to fetch an interest of 8.4% as against 8% at present
• Rate for senior citizens savings scheme (SCSS) hiked to 9.3% from 9%.
• National Savings Certificates (NSC) having maturity of five and ten years will now attract 8.6% and 8.9%, respectively.

The government's objective was to render the National Small Savings Fund schemes more attractive to investors by way of returns. The measure was also adopted to halt the tendency to switch over to bank deposit schemes.

Shyamala Gopinath Committee

The revision in rates was based on the Shyamala Gopinath Committee's recommendations for Comprehensive Review of National Small Savings Fund.

The panel had advised the government to link interest rates on small savings to market rates. It had also advised the government to notify interest rates afresh at the beginning of every financial year based on the average yields on government securities of similar maturity with a positive rate spread of 25 basis points.

Yield on the benchmark government year bond ranged from 7.8% to 8.97% in the calendar year 2011 leading to upward revision in the interest rates on savings deposits. This is first revision in interest rates after the NSSF was revamped in December 2011 in line with the recommendations.