The Reserve Bank said interest rates on small savings schemes, except the PPF, will remain fixed throughout the term of schemes.

       It clarified that interest rate for small savings, barring PPF, will be declared on April 1 every year and will remain valid till the maturity of the scheme.
What made the RBI announce it?
       It said the circular has been released as a clarification after it observed that news items are appearing in media which conveying an impression that the interest rates on small savings schemes linked to government securities (G-Sec rates) "are floating in nature and will undergo change depending on the yields on G-Sec during the currency of an instrument".
 Changes so far
  • In December last year, the government had increased interest rates on PPF to 8.6 percent from 8 percent earlier, and also raised ceiling on annual contributions to the fund to 1 lakh from 70,000.
  • Interest rates on savings account in post offices also rose to 4 percent from 3.5 percent. Similarly, interest rates on deposits of other maturities too was raised from December. The sale of 'Kisan Vikas Patras' (KVP) was discontinued from November 30, 2011.
  • In addition, the maturity period of monthly investment schemes (MIS) and national savings certificates was reduced from six years to five years.
  • MIS earns an interest of 8.2 percent, but accounts opened on/after December 1, 2011, would not be entitled for bonus. Besides, loans taken from PPFs would attract an interest of two percent per annum from December 1, 2011.
  • The government did away with commission paid to the agents for opening PPF accounts and Senior Citizens Savings Schemes, while the agents commission for Mahila Pradhan Kshetriya Bachat Yojana (MPKBY) was fixed at four percent. Besides, agency commission for all other schemes was halved to 0.5 percent.
  • RBI's clarification comes a few days after a similar one was issued by the Finance Ministry.
  • "The rate of interest on small savings schemes will be aligned with G-Sec rates of similar maturity with a spread of 25 basis points, with two exceptions. The spread on 10 year National Savings Certificate will be 50 basis points and on Senior Citizens Savings Scheme, 2004, (it will be) 100 basis points," RBI said.