4 New Major Changes In Small Savings Schemes

In the context of easing the transmission of the lower interest rates in the economy, the government has taken few measures with an aim to help and boost Indian economy.

The small savings schemes interest rates are perceived to limit the banking sector's ability to lower deposit rates in response to the monetary policy of the Reserve Bank of India.

The govt has also considered comprehensive view on the social goals of certain National Small Savings Schemes.

Following shall be implemented with effect from 1.4.2016 (with regard to National Savings Schemes)

1) The 25 bps spread that 1 yr., 2yr. and 3 yr. term deposits, KVPs and 5 yr Recurring Deposits have over comparable tenure Government securities, shall stand removed w.e.f. April 1, 2016.

This move is to make them closer in interest rates to the similar instruments of the banking sector. This is expected to help the economy move to a lower overall interest rate regime eventually and thereby help all, particularly low-income and salaried classes.

2) The interest rates of all small saving schemes would be recalibrated w.e.f. 1.4.2016 on a quarterly basis as given under, to align the small saving interest rates with the market rates of the relevant Government securities;

3) The compounding of interest which is biannual in the case of 10 yr National Saving Certificate (discontinued since 20-12-2015), 5 yr National Saving Certificate and Kisan Vikas Patra, shall be done on an annual basis from 1.4.16.

4) Premature closure of PPF accounts shall be permitted in genuine cases, such as cases of serious ailment, higher education of children etc,. This shall be permitted with a penalty of 1% reduction in interest payable on the whole deposit and only for the accounts having completed five years from the date of opening.

Note that the rates of interest applicable on various small savings schemes for the quarter from April to June 2016 effective from 1.4.2016 would be notified in March, 2016.

The Sukanya Samriddhi Yojana, the Senior Citizen Savings Scheme and the Monthly Income Scheme are savings schemes based on laudable social development or social security goals.

Hence, the interest rate and spread that these schemes enjoy over the G-sec rate of comparable maturity viz., of 75 bps, 100 bps and 25 bps respectively have been left untouched by the Government.

Similarly the spread of 25 bps that long term instruments, such as the 5 yr Term Deposit, 5 year National Saving Certificates and Public Provident Fund (PPF) currently enjoy over G-Sec of comparable maturity. This will encourage long term savings.

The above changes have been brought with the objective of making the operation of National Saving Schemes market-oriented in the interest of overall economic growth of the country, even while protecting their social objectives and promoting long term savings.

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