PPF interest rates to be floating, post office savings spared!

The government on Wednesday said interest rates on post office savings schemes, except the PPF, will remain fixed throughout the term of the scheme.

It clarified that interest rate for such small savings will be declared on April 1 every year and will remain valid till the maturity of the scheme.

However, in case of Public Provident Fund (PPF), which is a 15-year scheme, interest rates would not remain fixed for the entire period.

The annual interest accruals in the PPF account will depend upon the rate for that particular year, the finance ministry said.

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"The rate of interest on small savings schemes will be aligned every year with rates of government securities of similar maturity ... the rates are fixed and not floating so far as individual investments except PPF are concerned," it said, while responding to media reports that interest rates on all small savings schemes are floating.

With effect from December 1, 2011, the government has increased interest rates on PPF to 8.6 per cent from 8 per cent now, and also raised ceiling on annual contributions to the fund to Rs 1 lakh (Rs 100,000) 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.

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"The rate prevailing at the time of investments will remain fixed and unchanged till the maturity of the investment. Any revisions in interest rates in subsequent years will only be applicable to the investments made in the relevant period," it said.

The sale of 'Kisan Vikas Patras' (KVP) has also been discontinued from November 30, 2011. There was an apprehension about KVP, which was kind of a bearer instrument, that it was used for money laundering.

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In addition, the maturity period of monthly investment schemes (MIS) and national savings certificates has been 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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The government has done away with commission paid to the agents for opening PPF accounts and Senior Citizens Savings Schemes, while the agent's commission for Mahila Pradhan Kshetriya Bachat Yojana (MPKBY) has been fixed at four per cent. Besides, agency commission for all other schemes has been halved to 0.5 per cent.

With bank deposits giving over nine per cent return, people are now preferring parking funds in banks and hence there has been a net outflow from the small savings schemes, which are administered by the National Small Savings Fund (NSSF).