Reduction in interest rates of Small Savings Schemes

After the EPF taxation Fiasco by the Finance Ministry, another big blow has been passed on to the middle income savers by reduction of interest rates on small savings schemes effective 1st April 2016 for the April-June 2016 quarter. 

  Interest Rate (%)
Schemes Now New
Public Provident Fund 8.7 8.1
Sukanya Samriddhi Account 9.2 8.6
Senior Citizens Savings Scheme (5 yrs) 9.3 8.6
Kisan Vikas Patra 8.7 7.8
National Savings Certificate (5 yrs) 8.5 8.1
Monthly Income Account (5 yrs) 8.4 7.8
Post Office Deposit (5 yrs) 8.5 7.9
Post Office Recurring Deposit (5 yrs) 8.4 7.4
Post Office Deposit (1 yr) 8.4 7.1
(New Rates For April 1 to June 30)

As may be observed interest on Public Provident Fund (PPF) has been reduced by 0.60% from 8.7% to 8.1%.It will reduce the maturity proceeds of PPF accounts, which will impact achievement of financial goals such as Children’s Higher Education, Children’s Marriage and Retirement Corpus. Even Sukanya Samriddhi Yojana(SSY), which was launched with much fanfare last year for the girl child, has also been affected with 0.60% reduction in interest rate from 9.2% to 8.6%. Senior Citizen Savings Scheme which was big hope for retired people has been affected by 0.70% reduction in interest rate from 9.3% to 8.6%.Same is the case with Kisan Vikas Patra, NSC and Postal MIP.

Lower rates on Loans

This reduction in small savings scheme may prompt the RBI to reduce interest rates which in turn may lead to reduction in interest rates by banks in deposits and loans.We may expect to get loans at cheaper rates in future but we should be prepared to get lower interest on our deposits also.

Way forward for savings and Investment

The dream of any family is to provide for higher education for children and create adequate retirement corpus. Higher education is becoming costlier day by day. Increase in longetivity makes it imperative to create bigger retirement corpus. In order to achieve these financial goals, it is advisable to go for financial planning and draw a road map for financial security factoring the changing scenario of lower interest rate on public saving schemes and Bank deposits.

If you have already made a financial plan, you may revisit your financial plan and increase your savings and investment to achieve  your financial goals. If you have not made a financial plan, you are advised as follows;

i. Set your financial goals with time horizon and amount to be spent for the goals.
ii. Factor your risk tolerance and goal horizon in your investment strategy.
iii. Determine your asset allocation i.e. proportion of equity and debt.
iv. Increase equity exposure to generate higher return if your risk tolerance permits it
v. Monitor your portfolio and undertake periodic review & rebalancing

If you are not in position to undertake above activities on your own, you are advised to take the help of an experienced and professional financial planner preferably a SEBI registered Investment advisor. 




Last modified on Saturday, 19 March 2016 11:08

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.


  • Sameer Shaikh

    posted by Sameer Shaikh

    Monday, 18 April 2016 12:32

    Me and my co-worker was just discussing about it..thank you for the guidance

  • Neeta

    posted by Neeta

    Monday, 18 April 2016 12:29

    Will you help me to make Financial Plan for me?

  • sangeeta

    posted by sangeeta

    Monday, 18 April 2016 12:27

    sir you have given correct solution for the we cant control this interest rates but can make a better financial plan to achieve our goal

  • rakesh

    posted by rakesh

    Saturday, 26 March 2016 04:58

    eye opening article

  • sujata desai

    posted by sujata desai

    Saturday, 26 March 2016 04:57

    thank you for the information..

  • sangeeta

    posted by sangeeta

    Tuesday, 22 March 2016 11:54

    correct solution given on this problem

  • jigar

    posted by jigar

    Tuesday, 22 March 2016 11:52

    thank you for the information..

  •  amol

    posted by amol

    Monday, 21 March 2016 10:16

    sir you have given good choice to us..tnx

  • Shraddha

    posted by Shraddha

    Monday, 21 March 2016 10:14

    these schemes provide tax benefit..but if they are providing such low interest then not at all meaningfull..cause there are other options also like ELSS which gives high return along with tax benefit!!!

  • ashok

    posted by ashok

    Monday, 21 March 2016 10:10

    now a days it looks like better to invest in mutual fund rather than investing in government schemes..

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