Your investments in the small savings scheme -- post office savings scheme, National Savings Certificate, and public provident fund - will soon start earning higher interest rates that are benchmarked to market rates.
The annual interest rate available on these schemes is at present below what an investor can get from bank deposits of comparable maturity.
The government has announced a complete overhaul of the small savings scheme that has benchmarked rates of interest on these schemes to government securities, introduced a 10-year national savings certificate (NSC), increased the ceiling for public provident fund deposits to one lakh rupees every year and discontinued the Kisan Vikas Patra.
Interest rates on postal savings will go up to 4% from 3.5% at present. In addition, the maturity period of monthly investment schemes and national savings certificates will be reduced form six to five years.
The reforms will address the distortion caused by the small savings schemes in the overall interest rate structure of the economy. Depending on the market rates, these schemes either saw a large inflow of the big outflow, affecting the flows into banks in particular.
When market rates are low, the high interest rates on small savings become a kind of subsidy to the investors.
In the event, as is the case now, when interest rates on these schemes are below the market rates they see a big outflow, affecting the government's fiscal management, as funds from these schemes are used by state governments and the centre.
With bank deposits yielding more than 9% per annum, there has been a net outflow from the small savings schemes, which are administered by the National Small Savings Fund (NSSF), in the current year.
As per the memorandum, the payment of agency commission on all schemes, except the Mahila Pradhan Kshetriya Bachat Yojana, will be either discontinued or reduced by at least 0.5%. Women agents will continue to receive 4%
