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Post Office Schemes Interest Rates Dip In Q1 2017-18

Department of Economic Affairs, Ministry of Finance has declared the interest rates that would be applicable on the Post Office Small Savings Schemes for the quarter April to June 2017.

As you may be aware, this practice of fixing interest rates — on quarterly basis — was introduced in the previous financial year. Prior to that, this resetting was done on an annual basis.

The idea behind this it to be more relevant with the recent trends in market interest rates.

Few days back we started the new Financial Year i.e. Apr'17- Mar'18. Hence, vide its Office Memorandum dated Mar 31, 2017, the Govt. has notified the interest rates on various Post Office Small Savings Schemes for the First Quarter i.e. beginning from 1st April to 30th June 2017.

Revised interest rates on various post office schemes are detailed below:

Public Provident Fund (PPF) : Down from 8.0% to 7.9% p.a. [compounded annually]

5-year National Saving Certificate (NSC) : Down from 8.0% to 7.9% p.a. [compounded annually]

Monthly Income Scheme : Down from 7.7% to 7.6% p.a. [monthly compounding and paid out]

Senior Citizens Savings Scheme : Down from 8.5% to 8.4% p.a. [quarterly compounding and paid out]

Time Deposits
1-year Deposit : Down from 7.0% to 6.9% p.a.
2-year Deposit : Down from 7.1% to 7.0% p.a.
3-year Deposit : Down from 7.3% to 7.2% p.a.
5-year Deposit : Down from 7.8% to 7.7% p.a.
(All on quarterly compounding basis)

5-year Recurring Deposit : Down from 7.3% to 7.2% p.a. [compounded quarterly]

Kisan Vikas Patra : Down from 7.7% to 7.6% p.a. [compounded annually] 
(The scheme will now double your money in 113 months, as compared to 112 months earlier)

Sukanya Samriddhi Scheme : Down from 8.5% to 8.4% p.a. [compounded annually]

Savings Deposit : No change at 4% p.a. [compounded annually]

Your phones have become smarter. But your investments are still dumb.

In a nutshell, there is a tiny cut of 0.1% p.a. across all post office schemes vis-a-vis the previous quarter. This is in line with the expectations.

However, these rates are still a lot better than the interest rates offered by the banks on their fixed deposits. Hence, investors would definitely favour the Post Office Schemes to Fixed Deposits.

Frankly speaking, this is a bad idea... especially if you pay income tax at higher rates.

Debt mutual funds are a much more tax efficient investment vis-a-vis both the fixed deposits and post office small savings schemes.

Also, contrary to popular belief, they are quite safe and risk-free in nature.

Must Read: How to earn tax-free risk-free income.

As I often mention, your phones have become infinitely smarter, but your investments are still thoroughly outdated and useless. 

Isn't it high time you upgraded your investments too?

The revised interest rates apply only to the "new accounts" opened during the respective period (except PPF and Sukanya Samriddhi Scheme, where the new rate is applied on the outstanding account balance). For the existing accounts under all other schemes, the contracted interest rate remains unchanged until maturity.

You can check the applicable interest rates for the four quarters of Financial Year 2016-17 in the following blog posts: 
- Small Savings Schemes Rate Cut is Fantastic News
- Unchanged PO Savings Schemes Interest Rates for Q2 2016-17
- Wow! Just A Tiny Cut In Small Savings Schemes Q3 Interest Rates
- No Cut In Small Savings Schemes Q4 Interests Rates

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