PPF interest rate cut to 8.1% from 8.7%; KVS rate cut by 90 bps to 7.8%

The government on Friday announced an across-the-board reduction in interest rates on small savings and retirement savings, including the key Public Provident Fund (PPF) and Kisan Vikas Patra, in a move aimed at aligning interest on small savings with market rates.

Accordingly, the interest rate on public provident fund (PPF) has been reduced to 8.1 per cent from 8.7 per cent the rate on Kisan Vikas Patra to 7.8 per cent from 8.7 per cent, with effect from 1 April.

However, the government said the additional interest rate spreads which it allows on small savings schemes like PPF, Senior Citizen Savings Scheme, Sukanya Samridhi Scheme and NSC etc are being continued and included in the rates notified today.

The additional spread for these schemes are 25 basis points for PPF, 100 basis points for Senior Citizen Savings Scheme, 75 basis points for Sukanya Samridhi Scheme, 25 basis points for five year time deposit, 25 basis points for National Savings Certificate and 25 basis points for Monthly Income Scheme.These additional interest rate spreads are being continued and are included in the rates notified today, a government release stated.

The quarterly revision of interest rates will ensure that the interest rates under Small Savings Schemes are more dynamically related to the current market rates, thereby enabling the Banks to move their interest rates in line with current money market rates, the release added.

However, the government kept interest rate on Postal Savings Deposits unchanged at 4 per cent.

"On the basis of the decisions of the government, interest rates for small savings schemes are to be notified on quarterly basis," the order said announcing the rates for the first quarter of fiscal 2016-17.

The government had on 16 February, announced moving small saving interest rates closer to market rates. On that day, rates on short-term post office deposits was cut by 0.25 per cent but long-term instruments such as MIS, PPF, senior citizen and girl child schemes were left untouched.

The revised interest rates on small saving schemes with earlier rates in brackets are: