Govt slashes rates on small savings by up to 110 basis pts

Govt slashes rates on small savings by up to 110 basis pts

TIMES NEWS NETWORK

New Delhi:01.04.2021

The government has slashed interest rates on small savings schemes, such as post office deposits and public provident fund, by up to 110 basis points, dealing a fresh blow to savers seeking safety.

The new rates, effective Thursday and applicable for the first quarter, coincide with the government’s move to tax interest income on annual employee contributions of over Rs 2.5 lakh in PF, while giving government employees exemption up to Rs 5 lakh contribution.

The rate of interest on public provident fund is now at 6.4%, its lowest since 1974, according to National Savings Institute data.

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Revised rates will provide relief for banks

The latest rate action on small savings will go beyond active workers to include senior citizens as well as the girl child, who are major beneficiaries of the schemes. Senior citizens are already amongst the worst hit by falling rates as bank fixed deposit rates have crashed, leaving them with lower interest income.

Senior Citizens Saving Schemes and National Savings Scheme will see a 90-basis point reduction, while the popular PPF and Kisan Vikas Patras will see a 70-basis point fall. The sharpest cut of 110 basis points (100 basis points equal a percentage point) was reserved for oneyear fixed deposits, while three-year deposits will see a mere 40 basis points cut.

For senior citizens with five-year deposits, the new rates are in line with the rate on three to five years deposits offered by State Bank of India, which is also at 5.8%. But the bank is paying higher than post office deposits in maturity buckets of one, two or three years. In case of other deposits, SBI is currently offering higher rates across maturities.

The move will provide relief to banks, which compete with these schemes when it comes to raising deposits.

Full report: www.toi.in

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