What is a Provident Fund Account?
Many people think that a Provident Fund (PF) account is for everyone, but that is not true. Let me clear this confusion.
A Provident Fund account is only for people who doing jobs either in the government or the private sector. According to government rules, a small percentage of their salary is deducted every month and deposited into their PF account. The money in your PF account is divided into two parts, some amount credit into the pension scheme and some amount credit in your PF account.
Just for your information I want to tell you that, if you suddenly need money, you can withdraw a part of your PF balance, but not all of it. However, you cannot withdraw the pension amount until you leave your job or retire.
Interest on PF Account
Earlier, the interest rate on PF depended on the market, and there was no fixed rate. But now, the government is planning to fix the interest rate, so it will not change based on market ups and downs.
In this article, I will discuss the interest rate on PF accounts.
EPFO News: Fixed Interest on PF Accounts Coming Soon!
If you are a salaried employee, this news is important for you. The Employees’ Provident Fund Organization (EPFO) is planning to create a new reserve fund to provide a fixed interest rate to its millions of members.
With this step, PF account holders will receive stable interest every year, without being affected by market ups and downs. The Ministry of Labor and Employment and EPFO officials are studying how to implement this plan.
Why is This Needed?
Currently, EPFO invests a part of the PF fund in the stock market, including Exchange Traded Funds (ETFs) and other investments. Sometimes, when the stock market falls, EPFO gets low returns, which affects the PF interest rate.
To solve this problem, EPFO is planning to create a reserve fund that will help keep interest rates stable, no matter what happens in the stock market.
How Will This Work?
According to a report by Hindustan, EPFO will set aside a part of the interest earned each year and deposit it in the reserve fund. If the market falls and returns are low, EPFO will use this reserve money to maintain a stable interest rate.
This plan will benefit over 7 crore (70 million) EPFO members by ensuring fixed interest on their PF savings every year.
When Will the Decision Be Made?
Right now, the plan is in its early stages. The Ministry of Labour and Employment and EPFO officials are studying it. A final decision may be made in the next 4 to 6 months.
PF Interest Rate Changes Over the Years
When EPFO started in 1952-53, the PF interest rate was only 3%.
By 1989-90, it increased to 12%, which remained the same until 2000-01. After that, the interest rate changed from time to time.
Currently, in 2023-24, the EPF interest rate is 8.25%.
Important Meeting on February 28
A key meeting of the EPFO’s Central Board of Trustees (CBT) will be held on February 28 to decide the PF interest rate for the 2024-25 financial year.
In this meeting, they will discuss:
Keeping the interest rate stable
A small increase in the rate
However, a reduction in interest rates is unlikely.