PF interest rate increased to 9.5% for FY 2010-2011

Summary:

The government Employees' Provident Fund Organization (EPFO) has announced the increase in interest rate of employees’ provident fund from 8.5% to 9.5% for the current financial year 2010-11.

Impact:
Every employees of private and public sectors will earn more interest in their PF contribution for this year.

Why do they increase interest rate for current financial year?

Increasing the interest rate by 1 percent will increase burden of Rs 1,600 crore for the EPFO. The EPFO has over Rs 1,731 crore in the interest suspense account since 1952-53. The unclaimed PF money includes 1) Non active account 2) people do not transfer PF contribution to new account when they change job 3) no new contribution since many years.

Will you get 9.5 percent interest rate in future?

EPFO will take a call next year based on inflation rate and other parameters.

We are getting extra 1% interest rate for current year because of unclaimed PF money. Every year, there may be or may not be change in the PF interest rate. It was reduced from 12% to 8.5% from 1989 to 2009.

Few more announcements:
1) The EPFO had decided “not to invest in the stock markets” and would continue to follow the existing investment pattern. So PF money will be invested safe instruments.

2) The EPFO decided to stop paying interest on "inoperative accounts" which are not operated for past 36 months. Scenario- If you have X amount in your PF account and you are doing your business since 3 and more years. So there is no PF contribution for past 3 years.
You should not keep your PF account idle for more than 3 years now onwards.

3) The subscribers of the Employees Deposit Linked Insurance Scheme, the next of kin upon death of the subscriber will get 20 times the average basic salary of the last 12 months from the current fiscal 2010-2011.