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The government has lowered interest rates on small saving schemes by 0.1 per cent with effect from April 1, 2017

The government has lowered interest rates on small saving schemes by 0.1 per cent with effect from April 1, 2017. Following this revision, the popular Public Provident Fund (PPF) will fetch an interest rate of 7.9 per cent, its lowest in nearly 40 years, according to National Savings Institute. The Five-Year National Savings Certificate will also fetch an interest rate of 7.9 per cent. The existing rate for PPF and Five-Year National Savings Certificate is currently 8 per cent. The Sukanya Samriddhi Account Scheme, a small deposit scheme for the girl child, will offer an interest rate of 8.4 per cent annually, from 8.5 per cent at present.

"On the basis of the decision of the government, interest rates for small savings schemes are to be notified on a quarterly basis," the Finance Ministry said while notifying the rates for the fourth quarter of 2016-17 starting from April 1, 2017.

 
Similarly, the interest rate on Kisan Vikas Patra will come down to 7.6 per cent, Five-Year Senior Citizens Savings Scheme at 8.4 per cent and Five-Year National Savings Certificate at 7.9 per cent. However, interest on savings deposits has been retained at 4 per cent annually.

Term deposits of 1-5 years will fetch a lower interest rate of 6.9-7.7 per cent, which will be paid quarterly while the Five-Year recurring deposit has been pegged lower at 7.2 per cent.

The move is expected to prompt banks to lower the deposit rate in line with the small savings rate as offered by the government.

The reduction in interest rate comes in the wake of an overall decline in interest rate in the financial system. Retirement fund body Employees' Provident Fund Organisation or EPFO had earlier decided to lower the interest on provident fund deposits for the current fiscal year to 8.65 per cent, from 8.8 provided in 2015-16, for its over four crore subscribers.

Since April last year, interest rates of all small saving schemes have been recalibrated on a quarterly basis. The interest rates are linked to yields on government bonds.

According to the formula given by the Shyamala Gopinath panel, the interest rates of small savings schemes are reset every quarter and are slightly higher than the government bond yield of previous three months.

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