The government has finalized plans to increase the interest rates on post office savings deposits to 4 per cent, a move that is set to benefit millions savings deposit holders.

The interest rate for post office savings deposits is 3.5 per cent at present. "We have taken a decision. We will be issuing a release on that soon," Economic Affairs Secretary R Gopalan said.

The small scale saving schemes offered by the post offices were not taken up by savers looking at higher interest rates offered by banks in the country. Most banks are already offering a 4 per cent interest rates on savings accounts and after the deregulation of interest rates on savings account; some banks are planning to increase the rate to as much as 6 per cent.

A review panel, the Shyamala Gopinath Committee has recommended linking of interest rates on small savings with rates prevalent in the market. The committee ahs also recommended an increase in interest rate for one-year small deposit scheme to 6.8 per cent from 6.25 per cent and introduction of 10-year National Saving Certificate scheme.

The government has increased its market borrowing programme in order to make up for the shortfall.