With less than 24 hours left for the announcement of lok Sabha polls schedule, the Government in a last ditch effort to seek the goodwill of the common man, hiked the interest rates on fixed deposit (FD) schemes offered by post offices by up to 0.2 per cent on Tuesday.
It however kept the interest rate on the popular PPF (public provident fund) unchanged at 8.7 per cent. New interest rates on small savings schemes will come into effect from April 1, 2014, an official statement said. The Finance Ministry's decision comes on the eve of the announcement of general elections schedule by the Election Commission. As soon as the poll schedule is announced by the electoral body, the model code of conduct would come into effect, after which the Government would not be able to announce any populist policy to woo voters.
Also the decision comes close on the heels of the Government's last week's move to raise the dearness allowance (DA) to 100 per cent from 90 per cent. The step will benefit 50 lakh Government employees and 30 lakh pensioners. It was the second double digit DA hike in a row by the Government, as it had announced a hike of 10 per cent to 90 per cent in September last year, effective from July 1, 2013.
The new hike in DA became effective from the January 1, 2014. Meanwhile as per Tuesday's decision, the interest rate on fixed deposits for one and two years has been increased to 8.4 per cent from the present 8.2 per cent. Fixed deposits of three and five years will earn 0.1 per cent higher rate at 8.4 per cent and 8.5 per cent, respectively. Also, the interest rate on five-year recurring deposits will be 8.4 per cent, up from 8.3 per cent.
The annual investment ceiling in PPF savings is unchanged at Rs 1 lakh. The rate on National Savings Scheme (NSC) with 5 and 10 year maturities also remain unchanged at 8.5 per cent and 8.8 per cent, respectively. The rate on five-year Monthly Income Scheme (MIS) though remains the same at 8.4 per cent. The savings deposit rates are kept unchanged at 4 per cent.
The decision to hike interest rates, which are 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. In accordance with the panel's suggestions, the Government also decided to align the rate of interest on small savings schemes with G-Sec (Government Securities) rates of similar maturity, with a spread of 25 basis points (bps) with two exceptions. As per the recommendations, the interest rate is revised every financial year and notified before April 1.