EPF Interest Rate from 1952 and EPFO: EPF refers to the Employee Provident Fund which each company is meant to put aside for their employees out of their salaries every month. This is a fund that transfers from one company to another even when you switch jobs, as it is a requirement for the company to provide this service to its employees. It is a method of purposeful saving and this money becomes available to the holder of the account upon retirement.
The interest rate for this account is determined commonly by the EPFO (the Employee Provident Fund Organisation) for the entire nation in every new financial year. This is the body whose board is responsible for setting the EPF interest rate, and the body that is responsible for shelling out interest payments to EPF account holders upon retirement (or before in extraordinary circumstances).
The EPF Interest Rate from 1952 to 2021
Here’s a breakdown of interest rates set by the EPFO starting from the financial year 1952 till the present financial year 2020-21.
| Financial Year | EPF Interest Rate | Financial Year | EPF Interest Rate |
| 1952-53 | 3.00% | 1987-88 | 11.8% |
| 1953-54 | 3.00% | 1988-89 | 12% |
| 1954-55 | 3.00% | 1989-90 | 12% |
| 1955-56 | 3.50% | 1990-91 | 12% |
| 1956-57 | 3.50% | 1991-92 | 12% |
| 1957-58 | 3.75% | 1992-93 | 12% |
| 1958-59 | 3.75% | 1993-94 | 12% |
| 1959-60 | 3.75% | 1994-95 | 12% |
| 1960-61 | 3.75% | 1995-96 | 12% |
| 1961-62 | 3.75% | 1996-97 | 12% |
| 1962-63 | 3.75% | 1997-98 | 12% |
| 1963-64 | 4.00% | 1998-99 | 12% |
| 1964-65 | 4.25% | 1999-2000 | 12% |
| 1965-66 | 4.50% | 2000-01 | 11% |
| 1966-67 | 4.75% | 2001-02 | 9.5% |
| 1967-68 | 5.00% | 2002-03 | 9.5% |
| 1968-69 | 5.25% | 2003-04 | 9.5% |
| 1969-70 | 5.50% | 2004-05 | 9.5% |
| 1970-71 | 5.70% | 2005-06 | 8.5% |
| 1971-72 | 5.80% | 2006-07 | 8.5% |
| 1972-73 | 6.00% | 2007-08 | 8.5% |
| 1973-74 | 6.00% | 2008-09 | 8.5% |
| 1974-75 | 6.50% | 2009-10 | 8.5% |
| 1975-76 | 7.00% | 2010-11 | 9.5% |
| 1976-77 | 7.50% | 2011-12 | 8.25% |
| 1977-78 | 8.00% | 2012-13 | 8.5% |
| 1978-79 | 8.25% + bonus 0.5% | 2013-14 | 8.75% |
| 1979-80 | 8.25% | 2014-15 | 8.75% |
| 1980-81 | 8.50% | 2015-16 | 8.8% |
| 1981-82 | 8.75% | 2016-17 | 8.65% |
| 1982-83 | 9.15% | 2017-18 | 8.55% |
| 1983-84 | 9.90% | 2018-19 | 8.65% |
| 1984-85 | 10.15% | 2019-20 | 8.5% |
| 1985-86 | 11% | 2020-21 | 8.5% |
| 1986-87 | 11.5% | – |
As you’d notice, there is a steady increase in the EPF interest from the year 1952 up until the beginning of the 2000s. There is especially a boom where the interest rate hits an all-time high in the year right before the economy was opened up and the next subsequent decade after liberalisation, privatisation and globalisation. Since 2001, the interest rate has remained more or less stable, fluctuating between 8% and 9.5% and not venturing anywhere below or above this much.
We can remember that the effects of Coronavirus or COVID-19 began to manifest in India in March 2019. Keeping this in mind, the interest rate was set at 8.5% for the financial year 2019-20, and the board had also suggested that the interest payment for that particular financial year be split into two parts. This was suggested keeping in mind COVID and the ‘exceptional’ situation that it brought about.
The EPF interest rate was kept steady for the financial year 2020-21 as well, seeing as how the effects of Coronavirus on the economy are still ongoing. The board speculated that the EPFO may not be able to make any interest payments beyond even 8% because of how COVID-19 has impacted the economy on such a large scale. However, the interest rate cannot be brought down that low, and was, therefore, kept stagnated at 8.5%.
How is the EPF Interest Rate Determined?
The Employee Provident Fund Organisation has a Central Board of Trustees. This is the board that decides the EPF interest rate at the end of each financial year. The board members or the trustees of the EPFO take a look at the country’s economic situation, where the country stands in term of money, and then puts out a recommendation for the interest rate. The board must take into account the capacity of the EPFO to shell out that amount of interest before making the recommendation, while also keeping the economic climate in mind. For example, because of the COVID-19 pandemic and its dire economic effects, the interest rate was slashed and made to stand at a seven-year low. On the other hand, when the economy was opened up in the 1990s, the interest rate was at an all-time high, at 12%. This was first a recommendation that was made possible because the economy was then booming.
How to Calculate EPF Interest?
This interest from the EPFO is credited to the EPF holder at the end of the financial year. This means that it is calculated monthly between March to February every year, and credited in the month of April.
Here’s how the EPF interest is calculated, with the average monthly balance method. This method calculates interest per month and adds up the amount in April when the financial year is ending. This is the system used to calculate the interest, but this interest is yearly compounding. Keeping that in mind, here’s the breakdown of calculating EPF interest.
Since the interest on EPF is counted monthly rather than yearly, we take the annual interest rate and divide it into 12 parts (for the 12 months). The interest rate for 2019-2020 is 8.5%, meaning that the monthly interest for the year 2019-2020 is 8.5/12, which is 0.783%.
Components of Calculating EPF
There are several components to look at while calculating the EPF interest.
- The opening balance of an EPF account refers to the amount that has also been collected in the fund.
- Contributions are made to this amount monthly as the individual’s salary is given every month.
- At the end of the financial year, the interest will be calculated on the total amount, where the total amount = opening balance + monthly contributions made throughout the year.
- The ‘total amount’ will be the new opening balance for the next financial year.
Let’s use an example to make this clearer to you. Remember that both employers, as well as employees, contribute to an employee’s provident fund.
For example,
- An employee’s salary, including a dearness allowance, is Rs 20,000 per month.
- Employee contribution to EPF is 12% (Rs 2400).
- Employer contribution to EPS (Employee Pension Fund) is 8% (Rs 1600).
- Employer contribution to EPF = Employee EPF contribution – employer EPS contribution = Rs 800.
- Taking into account both employer as well as employee EPF contribution, total EPF contribution = Employer contribution + employee contribution = Rs 2400 + Rs 800 = Rs 3200.
Now, to calculate the interest on this monthly contribution of Rs 3200, we look at the interest rate, which is 8.5%. Divided into a monthly basis, it is 0.783%.
Let’s say that we’re calculating the interest for the month of April.
- Total EPF contribution for the month of April = Rs 3200.
- (Interest is not calculated in the first month of the financial year).
Now, calculating interest for the month of May.
- Opening balance = Rs 3200.
- Total EPF contribution for the month of May = Rs 3200.
- Total EPF balance in the month of May = Rs 6400.
- Interest on EPF contribution till the month of May = 0.783 x 6400 = Rs 50.11
Calculating interest for the month of June.
- Opening balance = Rs 6400.
- Total EPF contribution for the month of June = Rs 3200.
- Total EPF balance in the month of June = Rs 8600.
- Interest on EPF contribution till the month of June = 0.783 x 8600 = Rs 67.33
Now, the total interest accumulated for the months of May and June is Rs 50.11 + Rs 67.33 = Rs 117.44 and the same process carries on till the end of the financial year, i.e. March in the next chronological year. The interests per month are added up and it is credited to the account as a lump sum in April the next year.
Conclusion on EPF Interest Rate from 1952 and EPFO
The Employee Provident Fund is an important saving mechanism for all the people working in companies under the payroll. In a way, the EPF forces all employees to save money for when they retire, which is very useful, especially for people who do not already have good saving habits. The interest rate for the EPF is recommended by the Board of Trustees of the Employee Provident Fund Organisation whilst keeping in mind the ongoing economical climate. There has been a steady increase in the EPF interest rate from the financial year 1952-53 up until the year 2001-02. After that, it has decreased in the slightest and remained more or less between 8% and 9.5%, neither exceeding this nor going under.