Govt hikes interest on post office savings schemes by 1.1 bps, retains PPF rate

The government has increased interest rates on most post office savings schemes that do not get income tax benefits in line with the firming up of interest rates in the economy.

While the interest rate was retained for popular PPF and girl child savings scheme Sukanya Samriddhi, deposits up to 5 per cent as well as NSC, Senior Citizens Savings Scheme and Kisan Vikas Patra (KVP), where the income earned is taxable, rates have been increased. Up to 1.1 percentage points as per the notification of the Ministry of Finance.

This is the second consecutive quarter of increase in interest rates for some schemes. This follows status quo or unchanged rates for nine straight quarters.

Interest rates for small savings schemes are notified on a quarterly basis.

With the revision, fixed deposits of one year in post offices will fetch 6.6 per cent interest for two years (6.8 per cent), three years (6.9 per cent) and five years (7 per cent).

The notification states that the Senior Citizens Savings Scheme will earn 40 basis points plus 8 per cent during the January-March period.

In respect of KVPs, the government has increased the interest rates to 7.2 per cent, maturing in 120 months. Currently, KVP offers a rate of return of 7 per cent with a maturity period of 123 months.

Monthly Income Scheme will earn 40 basis points higher at 7.1 per cent, while National Savings Certificate (NSC) has been raised by 20 basis points to 7 per cent.

The interest rate on girl child savings scheme Sukanya Samriddhi Yojana was retained at 7.6 per cent, and for Public Provident Fund (PPF) it has been kept unchanged at 7.1 per cent. Interest will continue to be earned on savings deposits at the rate of 4 per cent per annum.

The Reserve Bank has raised the benchmark lending rate by 2.25 per cent to 6.25 per cent with effect from May, prompting banks to raise interest rates on deposits as well.

The RBI had earlier this month hiked the repo rate or short-term lending rate by 35 basis points. This was the fifth consecutive increase after an increase of 40 basis points in May and 50 basis points each in June, August and September. Overall, the RBI has increased the benchmark rate by 2.25 per cent since May this year.