Govt raises interest rates of small savings

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There is good news for people investing in small saving schemes such as Post office time deposits, National Saving Certificates (NSC) or Public Provident Fund (PPF).
The Finance Ministry has increased the rates by up to half a percentage point for 2012-13 on various small saving schemes.
But, despite this increase, rates on the small savings are still lower than interest rate on bank deposits.
The average rate on bank deposits with varying maturity is 8.5 to 9.25 per cent. The new rates on small savings (except 5-year senior citizen saving schemes) would be in the range of 8.2 to 8.9 per cent.
In an order issued here on Monday, the Ministry of Finance said that the new rates will be effective from April 1, 2012. The rates have been revised on the basis of change in the rates on Government Securities (G-Sec). This has been done on the recommendations made by the Shyamala Gopinath Committee.
People investing in one-year time deposits will gain the most, as the rate here has gone up by maximum of half percentage point, while NSC and PPF depositors will benefit by 20 basis points. There has been no change on savings deposits without any fixed maturity.
Small savings, despite tax incentives, have not been a favourite with small depositors. Experts believe that one of the reasons for this is the lower interest rates in comparison with other instruments available. Hence, there has been net outflow from the small savings.
According to the revised estimate given in the Budget, the net outflow is likely to be over Rs 10,000 crore during 2011-12. During 2012-13, the Finance Ministry estimates there will be net inflow of nearly Rs 1,200 crore.


Courtesy: The Hindu Business Line