PPF, KVP and NSC: Interest Rates Reduced on Saving Schemes

On Friday, the last day of the first quarter (Jan-March), the government announced to cut interest rates of small saving schemes from April 01 i.e. the second quarter that will last till June. The government reduced the interest rates by 10 base points or 0.1% from nine small saving schemes like Public Provident Fund (PPF), National Saving Certificate, Kisan Vikas Patra and many more.

The interest rate for PPF was earlier 8% which is now 7.9%. The same is with NSC while the new rate for KVP is 7.6%. This measure was taken so that banks can further reduce interest rates on loans. It is unlikely that the RBI will be reducing repo rate in the upcoming quarters next month. The question is what will this change impact us?

Impact on the Benefactors:

Experts say that such a small reduction won’t matter much to the benefactors. It may impact the long term investors who may have to pay taxes on the savings as well. The PPF is still the best saving scheme given that you won’t have to pay any tax on the savings. Therefore thinking about aborting any current scheme won’t be the right step to take. The important thing to note is that the regulation in rate can be done on quarterly basis which was previously on annual basis.

With some small changes on quarters can’t decide the fate of the policy you use. Experts say that PPF is still the best saving scheme policy which offers 7.9% interest rate and probably the only one in this category. When you don’t have to pay any taxes on the return then it won’t be a right step to think about aborting this policy.

Other Schemes:

Sukanya Samridhi Yojna and Senior Citizen’s Saving Scheme provides 8.50% interest rate which is the highest in these 9 schemes. A little reduction of 10 base points won’t impact much given that your duration of savings isn’t much longer. The important point to note is that the rates can be regulated quarterly and not annually therefore one can remain hopeful that the government increases the rate back to the previous.