After reducing interest rates on Employee Provident Fund (EPF) and then rising service tax and excise duty from 10% to 12% in budget 2012, finally government of India has announced a good news for individuals. With effect from April 1, 2012, the interest rates of small saving schemes such as Public Provident Fund (PPF), National Saving Certificate (NSC), Post Office Deposits will increase by 20 to 25 basis points.
However new interest rates will only be applicable on new investment made on or after April 1, 2012. The rate of interest on NSC and PPF will increase from 8.6 to 8.8% – 8.9% a year and term deposits in post office scheme are expected to fetch more than the longer tenure products such as PPF or the 10-year NSC. Whereas interest rate on saving bank account in post office will not change as it is already in line with current bank rate i.e 4%.
|Current Interest Rates||New Interest Rates||% Change|
|1 Year Time Deposit||7.7%||8.2%||0.5%|
|2 year Time Deposit||7.8%||8.3%||0.5%|
|3 year Time Deposit||8.0%||8.4%||0.4%|
|5 year Time Deposit||8.3%||8.5%||0.2%|
|5 year Recurring Deposit||8.0%||8.4%||0.4%|
|5 year SCSS||9.0%||9.3%||0.3%|
|5 year MIS||8.2%||8.5%||0.3%|
|5 year NSC||8.4%||8.6%||0.2%|
|10 year NISC||8.7%||8.9%||0.2%|
Some of you may find bank deposits as better investment option as they offer high returns than small saving schemes but if you consider the tax benefit that you get on investing under schemes like PPF which offers tax benefit under section 80C and tax free interest on deposit. So this new interest rate on small saving schemes like NSC and PPF will actually turn out to be 12% for one who falls in the tax bracket of 30%.
Secondly the rate of interest announced on small saving scheme will go for the complete financial year whereas the rate of interest on bank deposits can change (go down) any time in-between the financial year.