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Bad News For Investors In Post Office Small Savings Schemes

Earlier this week, the Ministry of Finance announced the interest rates on the Post Office Small Savings Schemes, applicable for the last quarter of the financial year 2017-18.

And the bad news is that the interest rates on almost all schemes have been reduced... by 0.20%.

By now you would surely be aware that, as per the present policy, interest rates on Small Savings Schemes are reset periodically on a quarterly basis.

Accordingly, the announcement of the same was made by Department of Economic Affairs, Ministry of Finance vide its Office Memorandum dated Dec 27, 2017.

This reduction comes on top of the earlier rate cuts in Quarter 1 i.e. Apr-Jun 2017 and Quarter 2 i.e. Jul-Sept 2017 — by 0.10% on both occasions. Thankfully, Quarter 3 i.e. Oct-Dec 2017 went without any rate cuts.

The revised interest rates on various Post Office Small Savings Schemes for Quarter 4 2017-18 — i.e. Jan 1st to Mar 31st, 2018 — are detailed below:

Public Provident Fund (PPF) : Down from 7.8% to 7.6% p.a. [compounded annually]

5-year National Saving Certificate (NSC) : Down from 7.8% to 7.6% p.a. [compounded annually]

Monthly Income Scheme : Down from 7.5% to 7.3% p.a. [monthly compounding and paid out]

Senior Citizens Savings Scheme : No change at 8.3% p.a. [quarterly compounding and paid out]

Time Deposits
1-year Deposit : Down from 6.8% to 6.6% p.a.
2-year Deposit : Down from 6.9% to 6.7% p.a.
3-year Deposit : Down from 7.1% to 6.9% p.a.
5-year Deposit : Down from 7.6% to 7.4% p.a.
(All on quarterly compounding basis)

5-year Recurring Deposit : Down from 7.1% to 6.9% p.a. [compounded quarterly]

Kisan Vikas Patra : Down from 7.5% to 7.3% p.a. [compounded annually] 
(The scheme will now double your money in 118 months, as compared to 115 months earlier)

Sukanya Samriddhi Scheme : Down from 8.3% to 8.1% p.a. [compounded annually]

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

The news of interest rate reduction is bad for those who don't wish to change their investments with time.

However, those who have switched to the MORE MODERN and MORE TAX EFFICIENT fixed-income investments, need not be worried by the aforesaid rate cut.

Investors in the Post Office Small Savings Schemes are being squeezed.

Debt mutual funds continue to be an excellent alternative to bank fixed deposits.

Contrary to popular belief, they are quite safe and risk-free in nature and a great way to earn tax-free risk-free income.

Moreover, even if by law they cannot give pre-fixed interest rates and the returns are market-linked, their performance over the last 15-20 years has been far (far) superior — without any compromise on safety and liquidity.

Must Read: How To Select The Low-Risk High-Yield Debt Funds.

Having said that, if you still wish to stick to the fixed, assured-rate investments with 100% safety, you have one saviour... the 8% GOI Savings (Taxable) Bonds. You will surely love this dear old almost-forgotten scheme. Once upon a time it was favourite among many investors. UPDATE: This scheme is closed for subscription with effect from Jan 2, 2018. This has been replaced with a new 7.75% Savings (Taxable) Bonds 2018. 

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 previous three quarters, in the following blog posts:
- Post Office Schemes Interest Rates Dip In Q1 2017-18
- PO Small Savings Schemes Rates AXED AGAIN For Q2 2017-18 
- Post Office Small Savings Schemes Q3 Interest Rates (NOT) Revised

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