Small Saving Schemes Interest Rates from 1-Apr-2016 (FY 2016-17)

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 1^st April, 2016 and are valid till 31^st March, 2017 (Financial year 2016-2017) unless specified.

Also Read: Best Small Savings Schemes to invest in India

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 15^th 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.

Also Read: You can get safe and regular fixed income from Post office Monthly Income Scheme (POMIS)

Complete summary of schemes with the old rate and revised rate (effective from 1^st April, 2016)

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Suresh
Small Saving Scheme Interest Rates from 1-Apr-2016

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Suresh KP

Founder at Myinvestmentideas.com

Suresh KP is the Founder of Myinvestmentideas. He is NISM Certified - Investment Adviser and NISM Certified - Research Analyst. He has been analyzing financial markets in the last 20 years.He can be reached at suresh@myinvestmentideas.com

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