The government on Tuesday cut interest rates for short term small savings by 0.25 per cent but left public provident fund (PPF) and monthly income scheme (MIS) untouched to encourage long term savings.
The interest rates will be re-adjusted on a quarterly basis instead of annual basis. The new rules will be applicable from April 1.
“Long term instruments, such as the 5 year term deposit, 5 year national saving certificates and public provident fund… have been left untouched as these schemes are particularly relevant to the self-employed professional and salaried classes. This will encourage long term savings,” the finance ministry said in a statement.
Sukanya Samriddhi Yojana, Senior Citizen Savings Scheme and the Monthly Income Scheme (MIS) – which command 0.75 per cent, 1 per cent and 0.25 per cent higher interest rate respectively than G-secs –will remain untouched as they are linked to social security goals, the statement said.
“The interest rates of all small saving schemes would be recalibrated with effect from April One, it said.
At present, PPF fetches 8.7 per cent interest rate while girl child scheme Sukanya Samriddhi Yojana gets 9.2 per cent. MIS gets 8.4 per cent interest rate.
Post office savings of 1, 2 and 3 year term deposits and 5-year recurring deposit gets 8.4 per cent interest per annum. Kisan Vikas Patra or KVP currently provides for doubling of principal in 100 months.
The government has also permitted pre-mature closure of PPF accounts in genuine cases.