Govt hikes PPF interest rate to 8.6%, limit to Rs 1 lakh

In a bonanza to millions of small savers, the government on Friday increased interest rates on deposit schemes offered by post offices, like savings account, Monthly Income Scheme and Public Provident Fund.

While post office savings accounts (POSA) will fetch 4 percent interest, up from

3.5 percent, the Monthly Income Scheme (MIS) and the Public Provident Fund (PPF) will earn an interest of 8.2 percent and 8.6 percent respectively, a government release said.

The maximum increase is in the one-year fixed deposits - from 6.25% to 7.7%. The interest rate on other time maturities has been hiked as well.

The new rates will be applicable from the date of notification which will be announced soon.

The decision to hike interest rates, which is in line with the recommendations of Shyamala Gopinath Committee, will make small savings schemes more attractive and returns would be in sync with market rates.

The government, however, decided to discontinue the Kisan Vikas Patras (KVPs) and lowered the maturity period for MIS and NSCs to five years from existing six years.

It also introduced the National Savings Scheme (NSC) with 10-year maturity.

The annual investment ceiling in PPF savings has been increased to Rs 1 lakh from the present limit of Rs 70,000, but it would be costlier to obtain loans from the savings under as lending rate has been doubled to 2 percent.

The government has scraped 5 percent bonus on MIS and has also done away with commission for agents on PPF and Senior Citizens Savings Schemes.

PTI