Interest rates on PPF, other small savings to be lower from April 1

New Delhi: Interest rate on small savings schemes, including PPF, Kisan Vikas Patra (KVP) and senior citizen deposits, will be cut by up to 1.3 percent from Friday as the government moves towards quarterly alignment of rates with the market.

Interest rate on Public Provident Fund (PPF) scheme will be 8.1 percent for the period April 1 to June 30, down from 8.7 percent.

On KVP, it will be reduced to 7.8 percent from 8.7 percent while senior citizen savings scheme of five years would earn 8.6 percent interest compared to 9.3 percent.

Girl-child saving scheme, Sukanya Samriddhi Account will see interest rate of 8.6 percent as against 9.2 percent, according to a Finance Ministry order.

However, unlike previous years when interest rates were set for the full year, the government will from now on set them every quarter, based on the previous 3-month yields on Government-Securities or G-Sec.

While the interest rate on Post Office savings has been retained at 4 percent, the same for term deposits of one to five years has been cut.

The popular Five-Year National Savings Certificates will earn an interest rate of 8.1 percent from April 1 as against 8.5 percent, at present.

A five-year Monthly Income Account will fetch 7.8 percent as opposed to 8.4 percent.

Post Office term deposits of one, two and three years command an interest rate of 8.4 percent but from April 1, a one-year time deposit will get 7.1 percent, two-year time deposit will earn 7.2 percent and 3-year time deposit will attract interest of 7.4 percent.

Five-year time deposit will fetch 7.9 percent interest in the first quarter as against 8.5 percent while the same on five-year recurring deposit has been slashed to 7.4 percent from 8.4 percent.

Kisan Vikas Patra or KVP that currently provides for doubling of principal in 100 months (8 years and 4 months) will now be doubled in 110 months (9 years and 2 months) after the interest rate revision.

The government had stated that the cut in small savings interest rate would help the economy move to "a lower overall interest rate regime eventually and thereby help all, particularly low-income and salaried classes".

The government has also permitted premature closure of PPF accounts "in genuine cases", like serious ailment or higher education of children.

"This shall be permitted with a penalty of 1 percent reduction in interest payable on the whole deposit and only for the accounts having completed five years from the date of opening," the finance ministry had said.

The interest rate for every quarter would be decided on the 15th of the preceding month. Interest rate for July-September quarter will be announced on June 15.