One of the most popular tax saving product Public Provident Fund, which not only gives tax benefit on investment but also provides tax exempted maturity amount, will again touch the 8% pa against 7.6% pa that it fetched before this hike. This has become possible after the government decided to raise the interest rate on small saving schemes from quarter beginning October 1, 2018.
The National Saving Certificate also witnessed a similar hike and will give 8% annual return. Interest rate on small saving scheme has been linked to market and government takes a call on these interest rates every quarter. Interest rates on government securities have been rising for quite some time but the government did not hike the interest rates in last quarter which started from June.
However, a hike in the current quarter looked imminent because the 10 year bond yield touched the 8% level in the beginning of this month on September 3. So, it was being anticipated that the rates may be revised upwards.
Time deposit of tenure less than 5 years have seen an interest rate hike of 0.30%. As a result one year time deposit (TD) will fetch an interest rate of 6.9% pa while 3 years TD will now earn an interest rate of 7.2% pa. The biggest hike of 0.40% was brought in instruments with maturity of 5 years and above, and as a result, 5 years time deposit will now earn an interest rate of 7.8% pa. The interest rate for recurring deposit with tenure of 5 year has been also hiked form 6.9% pa to 7.3% pa.
The biggest beneficiaries will be senior citizens who primarily depend on these saving schemes to get regular income. The interest rate on Senior Citizen Saving scheme, which is most popular small saving schemes among senior citizens, has been raised to 8.7% pa with quarterly payment.
The second highest interest rate is now being paid for Sukanya Samriddhi Account Scheme, which is meant for saving by parents for their girl child. This scheme will now earn an interest rate of 8.5% pa as against the existing interest rate of 8.1% pa. The saving under this scheme is eligible for tax deduction under Section 80C of income tax Act.
Kisan Vikas Patra (KVP), an instrument that doubles the investment in a given tenure also witnessed rise in interest rate to 7.7% pa. As a result, any money invested in KVP will now get doubled 6 months early. So the money invested in KVP will now get doubled only in 112 months instead of 118 months.