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INTEREST ON SMALL SAVINGS SLASHED BY 25 BASIS POINTS

Seeking to align interest on small savings with market rates, the government today cut rates on short-term post office deposits by 0.25 per cent but left long-term instruments such as MIS, PPF, senior citizen and girl child schemes untouched. Post office savings of 1, 2 and 3 year term deposits, Kisan Vikas Patra (KVP) as well as 5-year Recurring Deposits till now earned 0.25 per cent higher interest than the Government securities of similar tenures. This advantage has been withdrawn with effect from April 1, 2016, a Finance Ministry statement said, adding henceforth the rates would be revised every quarter. Sukanya Samriddhi Yojana, Senior Citizen Savings Scheme and the Monthly Income Scheme (MIS) -- which command 0.75 per cent, 1 per cent and 0.25 per cent higher interest rate respectively than G-secs -- will remain untouched as they are linked to social security goals. Similarly, long-term instruments such as 5-year term deposit and similar tenure National Saving Certificates as well as Public Provident Fund (PPF) have been left unchanged.
Currently, PPF deposits get 8.7 per cent interest rate while girl child scheme Sukanya Samriddhi Yojana commands 9.2 per cent. MIS gets 8.4 per cent interest rate. Post office savings of 1, 2 and 3 year term deposits and 5-year recurring deposit currently fetch 8.4 per cent interest per annum. Kisan Vikas Patra or KVP currently provides for doubling of principal in 100 months (8 year 4 months). "The 25 basis points spread that 1 year, 2 year and 3 year term deposits, KVPs and 5 year Recurring Deposits have over comparable tenure Government securities, shall stand removed with effect from April 1, 2016, to make them closer in interest rates to the similar instruments of the banking sector," the statement said. The move, it said, would help the economy move to "a lower overall interest rate regime eventually and thereby help all, particularly low-income and salaried classes".

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