Small Saving Schemes Interest Rates from 1-Apr-2016
Last week, Govt. of India has announced revised interest rates for small saving schemes which are effective from 1-Apr-2016 i.e. Financial year 2016-2017. As per the suggestions from RBI, Govt of India has reduced Small Saving Interest rates to bridge gap between rates offered in small saving schemes vs banks. In this article, I would list down the instruments where interest rates got affected and also complete list of revised interest rates for small saving schemes. These revised interest rates are effective from 1st April, 2016 and are valid till 31st March, 2017 (Financial year 2016-2017) unless specified.
Small Saving Scheme Interest Rates from 1-Apr-2016 (FY 2016-17)
Here are the changes in small saving schemes. Interest is compounded now annually instead of bi-annual in all saving schemes.
1) Post office term deposit rates are reduced from 8.4% to 8.15% (1 year, 2 years and 3 years term deposits)
2) KVP interest has been reduced from 8.4% to 8.15%. Earlier, your money used to double in 100 months, but now you need to wait for 104 months to double your money under this scheme.
3) 5 Years recurring deposit interest rates are reduced from 8.4% to 8.15%.
4) Employee provident fund interest rate is increased from 8.75% to 8.8%.
5) No change in interest rates for schemes like Sukanya Samriddhi Account, Senior Citizen Saving Scheme and the 5 Year NSC.
6) Some of the small saving schemes interest is now market linked. Schemes like 1 to 3 years Post office Term Deposits, KVP and 5 years RD are now linked to Govt. Securities, where interest would be reviewed every 3 months and interest rate would be announced 15 days in advance. Means for Apr to Jun quarter, by 15th March, the interest rate would be announced.
7) Long term instruments like Post Office MIS, PPF, Senior Citizen Small Saving Schemes, 5 Year NSC, Sukanya Samriddhi Account interest rates are not linked.
Where should you invest your money after reduction in interest rates in small saving schemes?
- Though there is reduction in Post office term deposit for 1 to 3 years, let us compare it with top bank fd schemes. SBI Offers 7.5% interest rates compared to Post office, which offers 8.15% interest rates. If you invest Rs 1 Lakh in SBI FD for 2 years, your maturity amount is Rs 115,563. Whereas if you invest Rs 1 Lakh in Post office 2 years FD scheme, your maturity would be Rs 117,506. Means you would still get higher interest in the post office, though there is a reduction in interest rates. Read my article on why post office term deposit is better than bank FD scheme.
- If you want to double your FD, banks offer 7% to 7.5% where it would take at least 115 months to double your money. In post office KVP, it takes 104 months. Though there is a reduction in interest rate, still KVP is beneficial compared to bank FD schemes.
Complete summary of schemes with the old rate and revised rate (effective from 1st April, 2016)
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Small Saving Scheme Interest Rates from 1-Apr-2016