The government has finally cut the interest rates offered on small savings schemes like PPF, Senior Citizen Savings Scheme, Post Office Fixed and Recurring Deposits and Sukanya Samriddhi Account by 0.4% to 1.3%.
The much publicized Sukanya Samriddhi Yojna would have 8.6% interest as compared to 9.2% earlier. Similarly for Senior Citizens Savings Scheme the interest rate has been cut to 8.6% from 9.3% earlier.
The interest rate on popular Public Provident Fund (PPF) has been cut to 8.1% from existing 8.7%. All the above interest rates are linked to yield of government bonds of similar tenure.
The worst impacted are the Post Office fixed and recurring deposit. The interest rates would now be almost at par with that of banks, in fact some private banks would offer more. The 1 year Post office would now give 7.1%, 2 year FD would give 7.2% and 3 year FD would give 7.4%. The 5 year post Office Recurring Deposit would pay 7.4% as compared to 8.4% earlier. In comparison ICICI Bank, HDFC bank are offering interest rates of 7.5% to 7.75% on their RDs.
Also Read: Highest Interest Rate on Bank Fixed Deposits
The 5 year post office fixed deposit would have interest rate of 7.9% while the 5 year Post Office Monthly Income Scheme (POMIS) would give 7.8%. The interest rate on Kisan Vikas Patra (KVP) has been reduced from 8.7% to 7.8% while the 5 Year National Saving certificate (NSC) would pay 8.1% from 8.5% earlier. The interest on KVP & NSC would be compounded annually from earlier practice of biannual interest payment.
The Post Office Savings Account would continue to offer 4%.
As we had written in an earlier post, these interest rates would be reset quarterly (Read: 4 Changes in Small Saving Schemes).
What Savers can Do?
There is nothing much savers can do. Sukanya Samriddhi Yojna and PPF are still attractive mainly because of tax free treatment on maturity. Senior Citizen Savings Scheme is still offering higher interest rates than banks for senior citizens.
Post Office Fixed and Recurring deposits are no more superior to banks. So they would only be used by people who do not have access to banks. NSC which is comparable to Tax saving fixed deposits by banks is still offering marginally higher interest rates.
If you have money you can still lock-in in the higher interest rates (if invested by March 31, 2016) offered by Post Office Fixed Deposits, Recurring Deposits, POMIS, KVP, NSC and Senior Citizen Savings Scheme. Once invested these schemes would give interest rates offered as of today. The new interest rates are effective April 1, 2016 – so you still have 10 days time.