Govt to hike rates on small savings from April 1

New Delhi: Millions of small investors will get better returns on popular post office schemes like Public Provident Fund (PPF) and Monthly Income Scheme (MIS), with the government hiking interest rates on such schemes by up to 0.5 per cent with effect from April 1.

Interest rate on PPF have been increased to 8.8 per cent from 8.6 per cent, while MIS will attract 8.5 per cent interest as against 8.2 per cent now, said a Finance Ministry release.

Post office term deposits of one and two years will earn 8.2 per cent and 8.3 per cent interest, respectively, an increase of 0.50 per cent.

The new rates would be remaining effective for the entire 2012-13 fiscal.

The hike in small savings rate, according to experts, may put some pressure on banks to increase deposit rates to attract investors.

As per the release, the National Savings Certificates (NSC) having maturity of five and 10 years will now attract 8.6 per cent and 8.9 per cent interest, respectively, up 0.2 per cent each.

There has been no change in the post office savings deposit rate which has been retained at 4 per cent.

Interest rate for three-year term deposits has been raised to 8.4 per cent from 8 per cent. Similarly, interest rate on five-year deposit has been raised from 8.3 per cent to 8.5 per cent.

The five-year recurring deposits will fetch an interest of 8.4 per cent, against 8 per cent at present.

The rate for senior citizens savings scheme (SCSS) has been hiked to 9.3 per cent from 9 per cent.

In November last year, the government had decided to make small savings attractive by making interest rates on them in tune with that offered by other securities in the market.

In the last fiscal, there had been a decline in the investment in National Small Savings Fund (NSSF) and the government had to make up for it by hiking its borrowing programme.

The decision to hike interest rates is in line with the recommendations of Shyamala Gopinath Committee, which had suggested that returns should be in sync with market rates.

Earlier, the government had raised annual investment ceiling in PPF savings to Rs 1 lakh from Rs 70,000.

The revision in the interest rates will help in maintaining the attractiveness of the small savings schemes vis-a-vis fixed deposit schemes operated by banks.

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, but continued to fix rates for small savings schemes.