Government to hike rates on post office savings to 4 per cent

In a move that many small savers will welcome, the government has decided to hike the interest rates on post office savings deposits to 4 per cent, from 3.5 per cent at present.

According to economic affairs secretary, R Gopalan, the government had taken a decision and would be issuing a release on it soon. Gopalan's remarks came on a query whether the government was proposing to hike interest rates on post office savings bank account to 4 per cent.

The postal department runs small savings schemes that are a major source of borrowings by the government. These are increasingly losing sheen with the attractive interest rates on offer on bank deposits.

Most banks are offering 4 per cent interest on savings bank deposits, with some lenders, after the freeing up of the rate  by RBI, offering a return of 6 per cent.

The government had constituted the Shyamala Gopinath Committee last year, to review the national small savings scheme, which had suggested linking of interest rates on small savings with that of the market.

Reforms in the small savings schemes were long over due given that the government had not acted on similar recommendations of Y V Reddy Committee report submitted in 2001.