Interest rates on small savings are fixed: RBIBusiness News

January 23, 2012 05:24
Interest rates on small savings are fixed: RBI

“As per the rules of small savings schemes, the rate of interest on an investment made in all schemes, except PPF, 1968 on a particular date, remains unchanged for the entire duration of the investment, till maturity, irrespective of the revisions in subsequent years,” the apex bank said in a circular.

The Reserve Bank of India (RBI) has said interest rates on small savings schemes, except PPF, will remain fixed throughout the term of schemes. It clarified that interest rate for small savings, barring PPF, will be declared on April 1 every year and will remain valid till the maturity of the scheme. “As per the rules of small savings schemes, the rate of interest on an investment made in all schemes, except PPF, 1968 on a particular date, remains unchanged for the entire duration of the investment, till maturity, irrespective of the revisions in subsequent years,” the apex bank said in a circular.   It said the circular has been released as a clarification after it observed that news items are appearing in media which conveying an impression that the interest rates on small savings schemes linked to government securities (G-Sec rates) “are floating in nature and will undergo change depending on the yields on G-Sec during the currency of an instrument”.

RBI’s clarification comes a few days after a similar one was issued by the Finance Ministry. “The rate of interest on small savings schemes will be aligned with G-Sec rates of similar maturity with a spread of 25 basis points, with two exceptions. The spread on 10 year National Savings Certificate will be 50 basis points and on Senior Citizens Savings Scheme, 2004, (it will be) 100 basis points,” RBI said. In December last year, the government had increased interest rates on PPF to 8.6 per cent from 8 per cent earlier, and also raised ceiling on annual contributions to the fund to Rs 1 lakh from Rs 70,000.

Interest rates on savings account in post offices also rose to 4 per cent from 3.5 per cent. Similarly, interest rates on deposits of other maturities too were raised from December. The sale of ‘Kisan Vikas Patras’ (KVP) was discontinued from November 30, 2011.  In addition, the maturity period of monthly investment schemes (MIS) and national savings certificates was reduced from six years to five years. MIS earns an interest of 8.2 per cent, but accounts opened on/after December 1, 2011, would not be entitled for bonus. Besides, loans taken from PPFs would attract an interest of two per cent per annum from December 1, 2011.

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