Savings shocker: How PPF, small savings rates cut will impact you

Zee Media Bureau

New Delhi: The government on Friday slashed interest rates on schemes that investors have been using to build their social security funds or saving for rainy day.

With this cut in small savings schemes, government has made it easier for the RBI to cut rates in the coming bi-monthly monetary policy. Now banks will be in a position to pass on rate cut benefits to the customers since the rates of small savings schemes will be at the same level as the prevailing bank rates. If rates are cut by the RBI in the coming policy meet, common man may be benefited as EMI's of loans will be cut accordingly.

The RBI has cut the repo rate, by 125 basis points since last January, but the banks reduced their lending rate by only about 70 basis points. The RBI is slated to review its monetary policy on April 4.

Interest Rates - Then and Now

Public Provident Fund (PPF): The government has cut the interest rate on Public Provident Fund from 8.7 percent to 8.1 percent. However, the interest earned on the PPF still remains tax-exempt on maturity. Investment made in PPF up to Rs 1,50,000 remains tax exempt under section 80C.

Kisan Vikas Patra (KVP): Interest rate on Kisan Vikas Patra has also been slashed to 7.8 percent from 8.7 percent. Thye tenure for investment has been raised from 100 months to 110 months. Earlier the scheme promised to make your investment double in 100 months but from April 1 the time limit has been extended to 110 months.

Sukanya Samriddhi Yojana (SSY): Interest rate on girl child scheme, Sukanya Samridhi Yojana, has been slashed to to 8.6 percent from 9.2 percent. However, the investment earned on the scheme remains tax-exempt on maturity and also exemption is provided on investment up to Rs 1,50,000 under section 80C.

Senior Citizens Savings Scheme (SCSS): Interest rtae on 5-year senior citizen scheme interest rate has been slashed to 8.6 percent from 9.3 percent. The investment made under this scheme is taxable and also TDS applies to it. However, one is eligible for deduction of up to Rs. 1,50,000 under section 80C.

Post Office Monthly Income Scheme (POMIS): The interest rate on one-year time post office deposit has been cut to 7.1 percent from 8.4 percent

The rate on two-year time post office deposit has also been slashed to 7.2 percent from 8.4 percent.

Interest rate on three -year time post office deposit ha been cut to 7.4 percent from 8.4 percent.

National Savings Certificates (NSCs): The 5-year NSCs will have a rate cut, from 8.50% to 8.10%. Investment in NSCs will be tax exempt under section 80C.

The interest rate on postal savings deposits, though, has remain unchanged at 4 percent.

Impact on your Savings

If you invest Rs 1,000 per month in PPF at the present interest rate of 8.7 percent for 15 years, you will receive Rs 360,351 at maturity. In the present scenario when rate has been cut down to 8.1 percent, the same investment may fetch you Rs 17,571 less.

If you invest Rs 4 lakh for five years in Post Office Fixed Deposit Scheme, you will get Rs 601,577 at 8.5 percent interest rate. However, after April 1 and revised rate of 7.9 percent you will receive Rs 585,137 i.e. Rs 16,460 less.

If you invest Rs 1,000 per month in 5-year Recurring Deposit Post Office Scheme, you will receive Rs 74,653 at 8.4 percent rate of interest. From April 1 the same RD will fetch you 72,699 at 7.4 percent rate of interest.

If you are investing Rs 1,000 in Kisan Vikas Patra, you will get Rs 2,000 at 8.75 percent rate of interest after 8 years and 4 months. Fromk April 1 you will receive an interest of 7.8 percent and the deposit will be doubled in 110 months not 100 as earlier.