Latest Interest Rates for Small Savings Schemes: Did you know that the central government has maintained status quo on interest rates for small savings schames? In other words, small savings schemes such as the popular 15-year Public Provident Fund (PPF), a government-backed long-term scheme, will continue to pay the same interest rate in the April-June period as the final quarter of FY25. Currently, interest rates applicable to PPF and other small savings schemes are reviewed on a quarterly basis and any revisions announced before the onset of a new quarter. 

First things first, take a look at the interest rates and compounding frequencies of small savings schemes such as PPF: 

So, PPF yields an annual return of 7.1 per cent on deposits. Before we see what this interest rate means in real life, let’s look at the basic features of this small savings scheme.  

Understanding PPF Interest Rate & Compounding Frequency With Example

Here are five key characteristics of the PPF account, according to the India Post (indiapost.gov.in) website: 

• Who can open a PPF account? Any adult resident Indian can set up a PPF account for self or as a guardian on behalf of a minor.  
• Are there any investment limits applicable to PPF? One can invest a minimum of Rs 500 and a maximum of Rs 1.5 lakh every financial year. ​
• Are there any tax benefits? In the old tax regime, PPF investors can claim up to Rs 1.5 lakh deduction in taxable income in a financial year. 
• What’s the lock-in (maturity) period and can it be extended? PPF comes with  lock-in period of 15 years. The savings scheme allows depositors to opt for 5-year extensions under certain conditions. The extension has to be within one year of maturity. 
• What are the withdrawal rules applicable to PPF? PPF subscribers are allowed one withdrawal per financial year after the first five years excluding the year in which the account was opened. Up to 50 per cent of the balance is withdrawable at the end of the 4th preceding year or at the end of te preceding year, whichever is lower. In extended accounts with deposits, one withdrawal is allowed every financial year subject to a maximum of 60 per cent of the balance. Premature closure is allowed under certain conditions.

Know Your Public Provident Fund | How PPF investments and interest withdrawals work 

Firstly, let’s take a look at the minimum lock-in period, which can be followed by 5-year extensions. During the extension period, if the investor chooses to continue contributing, they are allowed to make yearly withdrawals subject to certain conditions. Deposits into a PPF account must be made at least once every year for the first 15 years as well as during the extensions to be able to earn yearly income during the extended period.

If you invest Rs 1.5 lakh per year in the PPF account for its full maturity period of 15 years (total investment Rs 22.5 lakh), the maturity amount after 15 years will be approximately Rs 40.68 lakh (including interest of Rs 18.18 lakh), at the current interest rate of 7.1 per cent compounded annually, calculations show.

Let’s say you choose to go for a five-year extension to this account, taking the total period of investment to 20 years, your maturity amount will be approximately Rs 66.58 lakh (with investments totalling Rs 30 lakh and Rs 36.58 lakh interest earned), calculations show.

So, in 20 years, your total corpus will be about Rs 66.58 lakh. If you withdraw the interest annually starting at this point, you will get Rs 4.73 lakh a year (up to the 60 per cent threshold), which comes to about Rs 39,400 a month.

This way, you can plan your PPF extensions wisely to earn the desired regular income.

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