The Employees Provident Fund Organisation is central to the social security of millions of employees in this country. Various announcements made by this organisation throughout the year are of great interest to them but nothing excites them as much as the rate of interest determined by the EPFO once a year that would apply to the accumulated deposits of all those enrolled under the EPF (Employees Provident Fund).
The lowest rate
The lowest rate of interest that the EPFO ever paid to employees was 3%. It was the inaugural rate that was paid in 1952-53 and was maintained at that level for the next three years. Then it kept on rising till it reached 12% in 1989-90. The movement was unidirectional and the government kept on raising the interest rate.
The rate did not change from its peak rate from 1989-90 till 2000-01. It remained flat at the peak for as many as 12 years.Then it started on a downward journey. However, the rate of interest was never maintained steadily at any level for 12 years.
For 24 years out of the 72 for which interest rates have been declared by the EPFO, the rate of interest has been maintained between 8% and 9%.
And the highest
What’s the implication of 12% rate of interest? Let’s take a closer look.
A rate of 12% guaranteed return is a very high rate of interest in any guaranteed-return instrument.
According to the rule of 72, if one gets interest at the rate of 12%, any amount of money is doubled in two years. In comparison, one would take nearly 8 years and 9 months to double any initial amount of money if the current rate of 8.25% offered in FY24 is applied to a lumpsum.
Armed with an interest rate of 12%, if one starts out with a basic salary of only Rs 10,000, gets a 10% annual increment and retires at 58 years, he/she will end with a whopping Rs 2.37 crore in the EPF account.
If you are lucky to have an initial basic salary of Rs 12,000, the full amount would reach Rs 2.91 crore. Employee Provident Fund is a fundamental social security of any employee in a firm that employs 20 or more personnel.
An amount equal to 12% of the basic + DA of any employee is deducted from the salary and deposited in the EPF scheme. The employer also has to make a matching contribution with 3.67% going to the same EPF account and the remaining 8.33% going to a separate kitty from which the employee will get a pension every month.
This pension account is also maintained and administered by the EPFO.
EPF interest rate: The rate of interest offered by the Employees Provident Fund for 12 years without a break would appear incredible now. Applied to an FD, it would have trebled the original value in 12 years. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
