For India’s ageing population, ensuring a steady income stream and preserving hard-earned retirement savings is a priority. This is where fixed deposits (FDs) emerge as an attractive investment avenue for senior citizens seeking passive income with minimal risks. Not only do FDs guarantee returns, but issuers offer higher interest rates specifically for elderly investors above 60 years of age.
If you’re a senior citizen looking to make the most of your retirement corpus, here’s a look at why fixed deposits deserve your consideration:
Higher Interest Rates for Senior Citizens:
The primary allure of fixed deposits for senior citizens is the preferential interest rates on offer compared to general public rates. With lower risk appetites, most retirees prefer trading higher returns for the utmost safety of their invested capital.
To compensate for this conservative approach, banks/NBFCs offer FD rates which are typically 25-75 basis points higher for senior citizens across different tenors. Over long investment horizons, these incremental rates can significantly boost a retired person’s interest income and corpus growth.
This higher rate is applicable across all senior citizen FDs from banks and NBFCs. It can also be on popular investment options like corporate FDs and small savings schemes like the Senior Citizens’ Savings Scheme.
Steady Income Stream From Periodic Payouts:
Fixed deposits offer immense flexibility when it comes to interest payouts. Most investors prefer the cumulative deposit option that credits all interest income at maturity. However, for retirees dependent on FDs for regular income needs, the non-cumulative option with periodic interest payouts is more suitable.
Issuers allow senior citizens to set FD tenors of 6 months, 1 year etc. with interest payment frequencies ranging from monthly, quarterly to annual payouts. This ensures a steady cash flow stream from your FD investments to supplement other sources of retirement income like pensions.
Such periodic interest income can come in handy for funding living expenses, medical costs, recreation and more during your better years. It also helps avoid regularly dipping into the principal FD amount.
Tax Benefits on Interest Income:
The interest income received on fixed deposits is fully taxable for all investors based on their applicable income tax slab rates. However, senior citizens are eligible for higher annual tax deductions compared to the general public.
Individuals aged 60-80 years can claim a basic annual tax exemption of ₹3 Lakhs on their total income, including interest from FDs. For super senior citizens above 80 years, this exemption limit is an even higher ₹5 Lakhs. This reduces the effective tax outgo and increases the returns earned.
Many major banks and NBFCs also offer separate tax-saving fixed deposit schemes for 5 years that enable individuals to claim deductions of up to ₹1.5 Lakhs under Section 80C of the Income Tax Act, 1961.
Flexible Tenors & Liquidity Options:
Senior citizen fixed deposits are available across tenors ranging from 7 days to 10 years depending on your specific needs and investment horizon. This flexibility to pick compact or long-term tenors aligned with your liquidity requirements and financial goals is a key advantage over alternative options like annuities.
Most issuers also allow premature withdrawals from senior citizen fixed deposits subject to nominal penalty charges. This emergency liquidity factor can prove vital for retired individuals in case they need to access funds for unforeseen expenses like medical emergencies.
Deposit Insurance:
Fixed deposits from scheduled commercial banks carry an inherent degree of safety by being insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) deposit insurance scheme.
For fixed deposits up to the prescribed limit of ₹5 Lakhs per bank, this deposit cover ensures your invested capital is fully protected even in the unlikely scenario of a bank failure or default. Given the conservative and risk-averse nature of most retirees, this capital guarantee adds immense peace of mind.
Potential for Higher Returns Through Non-Bank Alternatives:
While bank FDs offer unmatched capital security, senior citizens with a higher risk appetite can explore higher-yielding fixed deposit alternatives from reputed non-banking entities like companies, NBFCs and post office schemes.
Similarly, the Senior Citizens’ Savings Scheme (SCSS) from India Post offers 8.2% interest rate which remains unchanged for the entire 5-year tenor. However, these may carry higher default risks compared to bank deposits.
In an era of rising life expectancies and higher inflation, FDs provide the ideal fixed-income instrument to generate stable returns and grow retirement savings for senior citizens. With benefits like higher senior citizen FD interest rates, tax advantages, and flexibility, investing a portion of one’s funds in FDs can be a smart decision.
By utilising online FD calculators and comparing options across different issuers and tenors, retirees can craft an optimal fixed deposit portfolio. This can help them meet their retirement income needs and broader wealth creation objectives. The key is maintaining a judicious mix based on risk appetite, income requirements and other financials.
Disclaimer:
CBD:
Qrius does not provide medical advice.
The Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act) outlaws the recreational use of cannabis products in India. CBD oil, manufactured under a license issued by the Drugs and Cosmetics Act, 1940, can be legally used in India for medicinal purposes only with a prescription, subject to specific conditions. Kindly refer to the legalities here.
The information on this website is for informational purposes only and is not a substitute for professional medical advice, diagnosis, or treatment. Always seek the advice of your physician or another qualified health provider with any questions regarding a medical condition or treatment. Never disregard professional medical advice or delay seeking it because of something you have read on this website.
Gambling:
As per the Public Gambling Act of 1867, all Indian states, except Goa, Daman, and Sikkim, prohibit gambling. Land-based casinos are legalized in Goa and Daman under the Goa, Daman and Diu Public Gambling Act 1976. In Sikkim, land-based casinos, online gambling, and e-gaming (games of chance) are legalized under the Sikkim Online Gaming (Regulation) Rules 2009. Only some Indian states have legalized online/regular lotteries, subject to state laws. Refer to the legalities here. Horse racing and betting on horse racing, including online betting, is permitted only in licensed premises in select states. Refer to the 1996 Supreme Court judgment for more information.
This article does not endorse or express the views of Qrius and/or its staff.
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