You should never underestimate the value of savings though you cannot rely on savings alone to pay for your expenses. Many senior citizens struggle after retirement when they come to realise their savings are not enough to take care of all their expenses. This explains why retired people must not be content with their savings only. There is an ardent need to churn both savings and investments to ensure a continued flow of earnings, be it interest income or earnings from the market.
They can start with some of these investment choices for continued income flow even after retirement:
Senior Citizen Savings Scheme (SCSS)
Retired people may consider this scheme to earn interest every quarter. The Senior Citizen Savings Scheme (SCSS) interest rate for the fourth quarter of the fiscal year 2022-23 is eight percent per annum. Among the fixed-income savings options available, this plan offers the highest rate of interest. Anyone over the age of 60 is eligible for this programme. Retirees over the age of 55 but under the age of 60 are also eligible to participate in this plan if they invest within a month of receiving their retirement benefits.
Quarterly interest is calculated and is fully taxable. When the scheme matures, it pays no interest. If a plan is extended after it has reached maturity, the investor will earn interest at the scheme's interest rate on the date of extension. Also, senior citizens can claim tax exemptions on investments made under Section 80C of the Income Tax Act, 1961.
Post Office Monthly Income Scheme (POMIS)
Retired people looking for monthly income can allocate a part of their savings to the Post Office Monthly Income Scheme (POMIS) to earn annual interest of up to 7.1 percent after the recent hike. A POMIS account can be opened individually or jointly. Also, one such account can be opened in the name of a minor aged above 10, or by a guardian acting on their behalf. However, these accounts cannot be held by organisations.
This account can be opened with a minimum of ₹1,000 and amounts greater than ₹1,000. A joint account can hold up to ₹9 lakh, whereas a single account can hold up to ₹4.5 lakh. Interest will be paid at the end of each month from the date the account is opened until it reaches maturity.
RBI Floating Rate Savings Bonds 2020
The interest rate on floating rate savings bonds (2020) was raised by the Reserve Bank of India (RBI) from 7.15 percent to 7.35 percent as per a release issued by the central bank on December 30, 2022. The rise in floating bond interest rates follows the government's increase in the interest rate on National Savings Certificates (NSCs).
These bonds are known as floating-rate bonds because their interest rate is reset every six months. The floating-rate bonds' interest rate is linked to the interest rate on NSCs as they offer an interest rate that is 0.35 percent higher than the current NSC rate.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
This relatively lesser-known scheme launched in 2017 provides regular income to senior adults and retired people. Individuals more than 60 years old are eligible to participate in this scheme available for 10 years. On January 1 and July 1 of each year, the interest rate is reset. Furthermore, on January 1 and July 1 of each year, interest is paid at half-yearly intervals. One can make a minimum investment of ₹1,000; however, there is no upper limit to investing in this scheme. The lock-in period for this investment is six years for senior citizens between the ages of 60 and 70, though a premature redemption option is also available. If the investor is between the ages of 70 and 80, the lock-in period is five years; if he or she is 80 or older, the lock-in period is four years.
Bank fixed deposits
Banks have been constantly upping interest rates on their fixed deposits post the repo rate hikes since 2022. Most banks frequently offer senior citizens an additional interest rate between 0.50 percent and 0.75 percent over and above the standard interest rates offered for various deposit tenures.
The interest is taxed at the investor income tax rate. Furthermore, banks will deduct a 10 percent TDS if the senior citizen’s interest income from all bank fixed deposits exceeds ₹50,000 in a fiscal year. Fixed deposits that pay interest monthly, quarterly, semi-annually, or annually are available to investors. Seniors who open fixed deposit accounts will have the option of determining the length of the interest payment period. It should be noted that the annual interest rate is higher for yearly payouts than for monthly payouts.
Special term deposits with banks
Several banks offer special term deposits to senior citizens with terms of five years or more. Some of them include HDFC Senior Citizen Care FD, ICICI Bank Golden Years FD and SBI WeCare FD designed specifically for senior citizens.
These are opened in the same way as term deposits. The interest on the special term deposit accounts is compounded quarterly, and principal and interest are paid at maturity. The minimum and maximum deposit periods are seven days and 10 years, respectively.
Post Office Time Deposit Account (POTD)
The Post Office Time Deposit Account is a well-known savings plan launched by India Post and is available for one, two, three or five years. The minimum investment required to open an account is ₹1,000, with no maximum investment amount.
Following the increase, the POTD now earns an interest rate of 6.6 percent, 6.8 percent and 6.9 percent for one year, two years and three years, respectively. Customers will earn seven percent interest on five-year post office term deposits post the increase for this quarter.
If investors prefer, they can keep their accounts open for the first tenure after they mature. Section 80C of the Income Tax Act of 1961 allows senior citizens to deduct the cost of a five-year POTD account.
