Interest rates on small savings schemes may go up by 0.25%

The government is likely to hike the interest rates on deposit schemes offered by post offices, like savings account, Monthly Income Scheme (MIS), Public Provident Fund (PPF), etc by about 0.25 per cent from April 1.

A circular on revised interest rate on small savings scheme will be issued by March 28, official sources said, adding that there could be a 0.25 basis points hike in the rates.

"We are in the process of calculating the rates. The new rates will be applicable from April 1," they added.

The government had in December, 2011 hiked interest rates on post office savings accounts (POSA) to 4 per cent, from 3.5 per cent. Similarly, the interest rates on the MIS and PPF was fixed at 8.2 per cent and 8.6 per cent respectively.

The decision to hike interest rates in December was in line with the recommendations of the Shyamala Gopinath Committee which had suggested linking of interest rates on small savings with that of the market. The panel had also suggested that the interest rates on small savings schemes should be revised annually.

The revision in the interest rates is aimed at 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.

Pursuant to the recommendations of the Gopinath Committee, the government had introduced the National Savings Scheme (NSC) with a 10-year maturity to attract long-term funds.

The annual investment ceiling in PPF savings was increased to Rs 1 lakh from Rs 70,000.

Source: EconomicTimes