In my first article Part I, we must have learnt the interest rates on various post office saving schemes. Now one notable change is that Post office rates are now linked to market rates of interest. So the interest rates can go up or down to the maximum of 100 points i.e. limited to 1% up or down in any financial year. The new rates will be declared in the month of April every year ( First April every year) and applicable from April to march in any financial year.
Now all post office schemes will be linked with govt G-securities interest rates.
Under 5 year Govt bonds interest rates (average for the year):
1. Monthly income scheme.
2. 5 year National savings certificate(NSC).
3. 5 year RD.
4. 5 year Term or fixed deposit
Under 10 year Govt bonds interest rates (average for the year):
1. 10 year NSC.
2. Public Provident Fund.
This type of transparent interest regime under post office which was absent in the past decade will be helpful in times of inflation and it can go downward also when the interest rates go down. The disadvantage in this new system of interest planning is that fixed deposits of banks always is higher than G-securities interest rates and hence there is likelihood of diversion of postal savings amount to banks. The central govt should take note of it and may notify one percent additional interest rates for postal schemes over govt bonds yields in order to make them attractive. Otherwise, the performance of postal schemes will be worse in future. We don’t know what financial sharks are doing in making postal saving schemes unattractive . Since past one year G-sec. average rates will be the model interest rates for post office saving schemes subject to maximum revision of rates of 1% up or down will make senior citizens and other village folks to think twice before investing in postal schemes as in banks, they are giving 0.50% additional interest for senior citizens. Also some of the postal schemes will lose income tax benefit. At present, Monthly income schemes yield is around 8.2% whereas in banks, senior citizens are getting interest rates of 10.5%. Govt can make postal schemes attractive provided it gives income tax benefit under Sec.80C.atleast upto 10%. Any takers???
C.R. Venkata Ramani