Earn more from PPF, post office deposits
TNN | Mar 27, 2012, 02.00AM IST
NEW DELHI: The government on announced a 20-50 basis point increase in interest rate on small savings schemes such as public provident funds, post office deposits and National Savings Certificate (100 basis points equal one percentage point).
Thanks to the increase, which will be applicable from April 1, deposits in PPF account will fetch 8.8% a year, compared to 8.6% now, while 10-year NSCs will earn 8.9% instead of 8.7%. Savings instruments with a longer tenure of five years or more have seen a more modest increase compared to products such as one or two-year post office deposits where the rise is 50 basis points.
In contrast, the Employees Provident Fund Organization will pay 8.25% on statutory savings that accounts for 12% of basic pay.
Last Wednesday, TOI was the first to report that small savings rate will rise by 20-50 basis points. Investment of up to Rs 1 lakh in most small savings schemes such as PPF and NSC qualify for income tax relief.
At the new rates a scheme such as PPF will fetch close to 12% return as annual contribution up to Rs 1 lakh as well as the interest earned on it are free from tax. The product is expected to get more attractive as the new financial year goes by since banks are widely expected to start reducing deposit rates once the Reserve Bank of India commences monetary policy easing to factor in the impact of lower inflation and moderation in credit demand from companies as well as individuals looking for home or auto loans.
Bankers, however, said that the hike will mean that there is pressure on them to price their deposits in a way that they remain attractive. Else, in the absence of sufficient deposit flow from individuals banks will have to access high-cost funds from the money market and from companies.
The new rates will ensure that individuals who opt for these voluntary schemes get the upside of the rising rate environment unlike the past when the rates were not flexible.