Govt hikes PPF interest rate to 8.6%

Government has increased interest rates on deposit schemes offered by post offices, like savings account, Monthly Income Scheme and Public Provident Fund. While post office savings accounts (POSA) will fetch 4 percent interest, up from 3.5 percent, the Monthly Income Scheme (MIS) and the Public Provident Fund (PPF) will earn an interest of 8.2 percent and 8.6 percent respectively, a government release said. Savings account rates paid by banks vary from 4 to 6 per cent after Reserve Bank of India (RBI) governor Duvvuri Subba Rao announced complete deregulation of savings banks deposit rates in the recent mid-year review of money policy. On funds parked in five-year senior citizens savings scheme, there is no change in interest rate of 9 per cent. A finance ministry notification said the government also raised the cap on annual Public Provident Fund (PPF) investments to Rs 1,00,000 from the present Rs 70,000 and discontinued the small savings instrument Kisan Vikas Patra.
These measures are in sync with the recommendations of former RBI deputy governor Shayamala Gopinath committee that submitted its report to finance minister Pranab Mukherjee on June 7 this year. Investments in PPF will now carry interest rate of 8.6 per cent, instead of 8 per cent and the interest rates on various postal savings schemes have been raised. The new interest rates would range from 7.7 per cent to 8.6 per cent, instead of the present 6.25 per cent to 8 per cent beginning December 1 this year. Minimum share of states in net small-savings collections in a year for investment in state government securities have been reduced to 50 per cent from 80 per cent. Proceeds from another 50 per cent of small savings deposits would be invested in central government securities or lent to other needy states. A new National Savings Certificate (NSC) would be launched with a 10-year maturity with an annual interest rate of 8.7 per cent. The usual monthly income scheme and national savings certificate, which presently carry a six-year maturity, would hereafter have five-year maturity. The rate on these two schemes have been raised 8.2 and 8.4 per cent, respectively from the present 8 per cent in each of the schemes or infrastructure bonds.