The interest rate on Employees Provident Fund (EPF) savings for 2011-12 has been slashed down to 8.25% from earlier 9.50%, which will leave many salaried employees with lower returns on their retirement savings. The 1.25 per cent cut in the interest rate is the single largest rate cut in over a decade.

The Employees Provident Fund Organisation (EPFO) had provided a 9.5 per cent interest rate to its subscribers for 2010-11 after it found Rs 1,731 crore surplus in its books.┬áBut the reserves were not enough to support this rate hike of 1 %, forcing EPFO to dip into this year’s income to fulfil last year’s promise. A 5.7% error in its income estimates for 2010-11 led to a Rs 510-crore deficit that was funded from this year’s income.

The interest rate on PPF (Public Provident Fund) remains unchanged at 8.6 %. Risk-free bank fixed deposits are earning over 9.25% currently. However one cannot ignore the tax benefit on the interest income that EPF provides.