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Interest rates for small savings schemes, may be reduced by the government

Interest rates for small savings schemes, such as Post Office Savings Account, Public Provident Fund and Post office Fixed Deposit Scheme, may be reduced by the government to align them more closely with the market rates, Economic Affairs Secretary Shaktikanta Das said.
The new rates would be applicable from April 1, 2016, Mr. Das said, without elaborating on the quantum of the cut. The rates for the long-term schemes and those for the girl child and senior citizens will remain unaffected by the decision, “Whatever policy rates are being announced by the Reserve Bank, the small savings rate will also pass it on….the effort has been such that the reduction in rates is passed on and given effect to the system,” Mr. Das said.
The Reserve Bank, over the last one year, has reduced interest rates by over a percentage point. At present, the small savings rates are linked to government securities and are readjusted every year. The decision is to start adjusting the rates on quarterly basis, Mr. Das said. “The executive order and notification would be issued in a day or two… broadly the underlying philosophy of the planned changes is to align the small savings rates more frequently and more closely to the market-aligned.”

The smalls saving schemes include Post Office Monthly Income Scheme (MIS), PPF, Post Office Fixed Deposit Scheme, Senior Citizens Savings Scheme, Post Office Savings Account and Sukanya Samriddhi Accounts.

While the rates for the girl child and senior citizen schemes will also be adjusted every quarter, the spreads they have over the G-Sec rates will be left unaltered, Mr. Das said.