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Provident Fund interest rate is up; is this the best instrument for small savings?

Provident Fund interest rate hike: The Central Board of Trustees' proposal will now go to the Finance Ministry for approval. The interest rate is credited into the accounts of subscribers after it receives the concurrence of the Finance Ministry.

, Edited by Explained Desk | New Delhi | Updated: February 21, 2019 11:10:44 pm
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The Central Board of Trustees of the Employees’ Provident Fund Organisation (EPFO) Thursday recommended raising the interest rate on PF deposits for its 5 crore subscribers to 8.65% for 2018-19, up from 8.55% in the previous year.

The higher interest payout will leave a surplus of Rs 151.67 crore with the EPFO for 2018-19, as against a surplus of Rs 586 crore in the previous year. Had the EPFO kept the rate at 8.55%, it would have had a surplus of Rs 771.37 crore for 2018-19. And at an interest rate of 8.70%, the Fund would have shown a deficit of Rs 158 crore.


A higher rate is obviously good news for contributors. However, the hike by the EPFO comes at time when interest rates set by the Reserve Bank of India are moving in the downward direction. The RBI recently cut its repo rate by 25 basis points, and is meeting bankers for better transmission of the lowered rate.

The yield on the 10-year benchmark government bond has remained well below 8% throughout the year, despite the government delaying its fiscal consolidation plan.

The rate offered by EPFO will be much higher than that offered by most small saving schemes. The interest rate offered by EPFO in 2017-18 was the lowest in five years (8.55%). The rates for 2016-17 and 2015-16 were 8.65% and 8.8% respectively. In 2014-15 and 2013-14, EPFO had kept the interest rate 8.75%, and in 2012-13, at 8.5%.

The Central Board of Trustees’ proposal will now go to the Finance Ministry for approval. The interest rate is credited into the accounts of subscribers after it receives the concurrence of the Finance Ministry.

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