A dormant EPF will Not Earn Anything

We all are excited – with the honourable Finance Minister's announcement about the hike in interest rates on Employee Provident Fund (EPF) accounts from 8.5% to 9.5%. With the increased rate of interest effective from April 1, 2011, the EPF account has single-handedly become the sole best debt investment fund for a relaxed retirement. Your modest monthly additions to the EPF account combined with your employer's contribution, being compounded annually, over a period of close to thirty years can easily make you a Crorepati.

So, you must be excited too. You just switched jobs, got a pay raise and are thinking of stabilising your career in the same company for at least a good five years. You are excited that you too can now avail the new rate of interest on your EPF account with your new employer and also on the previous EPF account in the previous job. Well, think again!

As per the new rules, effective April 1st 2011, all EPF accounts which are dormant will stop incurring any interest. Since you left your previous job, all PF contributions - either from you or your employer's side have stopped. With no new credits taking place, your EPF account will become inoperative in 36 months and as per the new rules will stop incurring any interest.

So what does one do? How do you make the best of the 9.5% interest rate and not get left behind while the world rides the EPF train to their easy retirement?

Well, there is no need to panic, as all is not lost. Amends can still be made. You may:

1. File an application for withdrawal of the money from your dormant EPF account. This way you can mobilise your funds from an account which does not get you any interest and move it to a fixed deposit account where it will start earning interest.
2. File an application for transfer of the money from your dormant EPF account to your new operative EPF account. This way it will join your new stream of monthly PF credits and accumulate interest all at one place.

Key point to remember here is to either apply for transfers of funds from your old EPF account to the new EPF account each time you change your job or to continue your existing EPF account with your new employer. As long as you keep your EPF account active, you can enjoy the tax-free interest on your hard earned money and plan for a happy retirement.