New Delhi: PPF account holders, small depositors and persons keeping money in the schemes operated by post offices, will get higher rate of return from 1 December, 2011.
The government on Thursday notified increase in interest rates on public provident fund (PPF) to 8.6% from 8% now, and also raised ceiling on annual contributions to the fund to Rs one lakh from Rs 70,000.
Interest rates on savings account in post offices would also go up to 4% from 3.5% at present. Similarly, interest rates on deposits of other maturities too would be raised from December.
Further, the sale of Kisan Vikas Patras (KVP) will be discontinued from November 30. There was an apprehension about KVP, which was kind of a bearer instrument, that it was used for money laundering.
In addition, the maturity period of monthly investment schemes (MIS) and national savings certificates would be reduced from six to five years.
MIS would earn an interest of 8.2%, but accounts opened on/after 1 December would not be entitled for bonus.
Further, every Rs 100 invested in National Savings Certificate (NSC) would fetch Rs 150.90 at the end of five years.
Besides, loans taken from PPFs would attract an interest of 2% per annum from 1 December, 2011.
The government has done away with commission paid to the agents for opening PPF accounts and Senior Citizens Savings Schemes, while the agents commission for Mahila Pradhan Kshetriya Bachat Yojana (MPKBY) has been fixed at 4%. Besides, agency commission for all other schemes has been halved to 0.5%.
The government has also notified an increase in the interest rate on recurring deposit schemes of post office. As per the calculation, a recurring deposit of Rs 10 every month would fetch Rs 738.62 after the end of 5 years.
With bank deposits giving over 9% return, people are now preferring parking funds in banks and hence there has been a net outflow from the small savings schemes, which are administered by the National Small Savings Fund (NSSF).
This has made the government hike its budgeted market borrowings for the current fiscal by Rs 52,800 crore.
Budget 2011-12 calculations were made with estimation of Rs 24,000 crore in NSSF, but instead the fund dipped by Rs 35,000 crore.
The decision to hike interest rates, which is in line with the recommendations of Shyamala Gopinath Committee, would make small savings schemes more attractive and returns would be in sync with market rates. The committee had suggested that the government should notify the interest rates at the beginning of each financial year.