Employee Provident Fund (EPF) is formed by an equal contribution from employee and the employer and this scheme is managed by Employee Provident Fund Organization (EPFO). The employee gets the lumpsum amount including interest at the time of his/her retirement. The interest for EPF was 8.55% until 2017-18 before an interest rate hike has been proposed in February 2019 to 8.65%.
EPF Interest Has Not been Credited Yet
The interest for EPF for the year 2018-19 has not been credited yet. Last year the same was credited in May 2018 and for some, it didn’t reflect in their EPF accounts until September 2018. One can always check if the interest is credited on the EPFO website or through UMANG App.
A Rift between Finance and Labour Ministry?
Indian Labour Ministry announced a rate hike in the interest for EPF to 8.65% from the previous levels of 8.55%. The finance ministry has asked the labor ministry to cut the EPF interest rate. The fund hasn’t been performing well after IL&FS defaults where EPFO investments are around Rs 574.73 crores. Also, a higher interest rate for EPF might hurt the banks as the savings rate is lesser than the EPFO interest rate and the banks fear losing deposits to the fund.
At the current interest rate, the surplus of funds with EPFO would be Rs 771.37 crores after 2018-19 interest payments. At 8.65% the surplus would be Rs 151.67 crores. Also, any rate above this would lead to a deficit of funds with EPFO. At this time, with IL&FS default, the finance ministry thinks that 8.55% would be an ideal rate for the current year as well. Now the labor ministry is considering tweaking the interest rate.
The Effect of No Interest Rate Hike
There’s hardly any reason for the employees to worry about the interest rate change (or no change). If an EPF account has Rs 10,00,000 and the interest at 8.65% is Rs 86,500 which will be Rs 1000 more than the interest at 8.55% (85,500). For every Rs 5,00,000, the difference in interest is Rs 500 which isn’t much and there is no need to worry about not having an interest rate hike. Once the situations in the market correct itself the proposed rate can be put into action.
The interest rates of PPF, Sukanya Samriddhi Scheme, Senior Citizens Savings Scheme, RD’s and Monthly Income Saving Scheme are cut by 10 basis points in the wake of RBI rate cuts. As these interest rates of these are linked to the yield on government bonds which fell by 70 basis points from the previous quarter. The interest rates of these schemes are below the interest rate of EPF. Hence EPF is better than others at its interest rate offering of 8.55%.