Interest rates on small savings schemes, including National Savings Certificates or NSC and Public Provident Fund or PPF, received a huge cut of up to 1.1 per cent for the first quarter of 2021-22 in a massive blow to middle-class depositors.
The interest rate on PPF has been reduced from 7.1 per cent to 6.4 per cent while NSC will now earn 5.9 per cent, down from 6.8 per cent.
The new interest rate on PPF will be the lowest since 1974. According to reports, the PPF interest rate was 7 per cent between August 1974 and March 1975. Before that, the rate was 5.8 per cent.
Interest rates for small savings schemes are declared every quarter and are in line with the falling fixed deposit rates of banks. The cuts were largely necessitated by the spiralling fiscal deficit which the government has struggled to rein in, experts said.
Govt cuts interest rates on small savings wef from April 1
Savings deposit revised from 4% to 3.5%,annually.
PPF rate down from 7.1% to 6.4%,annually.
1 yr time deposit revised from 5.5% to 4.4%,quarterly.
Senior citizen savings schemes rate down from 7.4% to 6.5%,quarterly&paid pic.twitter.com/x05Hko3vho
— ANI (@ANI) March 31, 2021
The interest rate for the five-year Senior Citizens Savings Scheme, paid quarterly, has also been reduced steeply by 0.9 per cent to 6.5 per cent.
For the first time, the interest rate on savings deposits has been reduced by 0.5 per cent to 3.5 per cent from the existing 4 per cent annually.
The steepest fall of 1.1 per cent has been effected in the one-year term deposit. The new rate will be 4.4 per cent as compared to 5.5 per cent at the moment.
Similarly, a two-year fixed deposit will earn 0.5 per cent less at 5 per cent, a three-year term deposit rate will be down by 0.4 per cent and five- year term deposit rate will be lower by 0.9 per cent at 5.8 per cent.
The girl child savings scheme Sukanya Samriddhi Yojana account will offer a 0.7 per cent lower rate at a 6.9 per cent rate during the first quarter of the next fiscal.
The annual interest rate on Kisan Vikas Patra (KVP) has been reduced by 0.7 per cent to 6.2 per cent from 6.9 per cent.
While announcing the quarterly setting of interest rates in 2016, the finance ministry had said that rates of small savings schemes would be linked to government bond yields.
Last month, the Reserve Bank of India (RBI) kept interest rates static for the fourth time in a row at 4 per cent on inflationary concerns.
This is the second time the government has cut interest rates on small savings schemes in the past year. In the April-June quarter of 2020-21, the government had slashed rates of small savings schemes by 0.70-1.4 per cent.
(With inputs from PTI)