Government may cut interest rates on small savings including PPF

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In a move that could hurt the common man in new year, the government likely to lower interest rates further on small savings including Public Provident Fund (PPF).

According to reports, if the government opts to adopt the recommendations of the Gopinath panel formula, the PPF rate can be cut by almost 100 basis points to 7 per cent from present 8 per cent. PPF is one of the most popular investment options for retirement and tax savings.

Besides PPF, the small saving schemes that may face the heat of the government’s decision for the January-March quarter include – Kisan Vikas Patra, Sukanya Samriddhi Account and Senior Citizens Savings Scheme.

Currently, interest rates of small savings schemes are revised every quarter and are linked to yields on government bonds. The government uses Gopinath panel formula to decide the interest rates that are offered by it on small savings.
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It is believed that the interest rates of small savings schemes are slightly higher than the average yield of government bonds of the same maturity in the preceding three months, and thus a cut in the rates are inevitable.

Earlier this week, the Employees Provident Fund Organisation (EPFO) had lowered the interest on provident fund deposits of over four crore subscribers for the current fiscal to 8.65 per cent, from 8.8 provided in 2015-16. The EPFO had maintained 8.75 per cent for 2013-14 and 2014-15 while it was 8.5 per cent in 2012-13.