scorecardresearchYour Questions Answered: Investing in Senior Citizen Fixed Deposits

Your Questions Answered: Investing in Senior Citizen Fixed Deposits

Updated: 21 Aug 2022, 11:18 AM IST
TL;DR.
Here we aim to address some of your most pressing personal finance queries. Read further to make the optimal use of your money!
The Senior Citizen Savings Scheme is a retirement benefits programme backed by the Government of India.

The Senior Citizen Savings Scheme is a retirement benefits programme backed by the Government of India.

Q. I am a 62-year-old retired government employee. I was a private employee and I did not get any kind of pension from my ex-employer. I want to invest some portion of my savings into a Fixed Deposit in order to earn a steady income during my last days. I intend to invest in Senior Citizen Fixed Deposits but I am uncertain about the tenure, interest rate, taxation, and eligibility criteria.

Mrs. Vijeyta Laxman, Hyderabad

Senior citizens typically look for safe investment options that give them a guaranteed income along with capital protection. Even though there are various investment options available, fixed deposits continue to be one of the most popular choices among senior citizens, as they offer guaranteed returns with no financial risk.

What is a Fixed Deposit?

A Fixed Deposit, also known as an FD, is an investment tool that banks and Non-Banking Financial Companies (NBFCs) provide to their clients in order to help them save money. With an FD account, you can invest your funds at a predetermined interest rate for a fixed time period.

It is a risk-free investment option that guarantees consistent interest rates, offers special interest rates for senior citizens, and multiple interest payment options, and is not subject to market-related risks.

What is a Senior Citizen Fixed Deposit?

In their post-retirement years, senior citizens may benefit from the option of regular interest payout by receiving a steady and reliable income. This is where Senior Citizen Fixed Deposits come into play. Senior Citizen Fixed Deposits (FDs) are term deposit plans with special interest rates offered to individuals over 60 years of age. Most banks and NBFCs offer an additional interest rate over and above the regular fixed deposit interest rates to senior citizens.

Key features of a Senior Citizen Fixed Deposit:

1. Tenure

Typically, the tenure can be anywhere from seven days to twenty years or even longer.

2. Interest rates

The interest rates are usually 0.25% to 0.75% higher than those of regular FDs.

3. Taxation

If you choose a 5-year tax-saving fixed deposit scheme offered by banks, the amount deposited is allowed as a deduction from your taxable income. A deduction of up to Rs. 1.5 lakh is allowed u/s 80C of the Income Tax Act,1961.

Section 80TTB of the Income Tax Act provides tax benefits available to senior citizens (i.e., an individual of the age of 60 years or above) who earns up to Rs. 50,000 in interest income from deposits with banks, post offices, and co-operative banks.

4. TDS on Senior Citizen Fixed Deposit

A 10% TDS is deducted from the interest income by the bank or financial institution if the interest earned from a Senior Citizen's Fixed Deposit scheme exceeds Rs. 50,000 in a financial year. To avoid TDS deduction from earned interest, a senior citizen can submit Form 15H to the bank or financial institution if they do not fall into the tax bracket and their interest earnings are not taxable. Form 15H must be submitted to all banks and financial institutions where the senior citizen has an account.

5. Premature withdrawal

Senior citizen FDs are for a fixed period. You may, however, choose to withdraw the deposit before the investment period is up. This is referred to as the premature withdrawal from fixed deposits. Usually, all fixed deposit schemes have the option of premature withdrawals. However, depending on the bank or financial institution, a fee may be levied on such withdrawals.

Some banks and NBFCs permit early withdrawals after a specified lock-in period, which could range from six to twelve months or even longer. However, premature withdrawals are not permitted for 5-year tax-saving fixed deposit schemes.

Eligibility for Senior Citizen Fixed Deposit

Any individual who fulfills the required criteria can invest in the Senior Citizen Fixed Deposit:

  1. The individual must be 60 years of age or older.
  2. Both Indian residents and NRIs can opt for this scheme
  3. Individuals who have taken early retirement are allowed by some banks to apply for this FD scheme. This may differ from bank to bank and is subject to certain terms and conditions.

The benefits of a Senior Citizen FD investment

The following benefits are available to senior citizens who invest in Senior Citizen Fixed Deposit schemes:

  1. Senior citizens can be certain of the returns on their fixed deposits. The FD interest rates are pre-determined and do not change after the investment is made.
  2. Returns on fixed deposits are guaranteed at predetermined interest rates. The risk is low as compared to other market-linked instruments.
  3. Senior citizens usually get higher FD rates.
  4. Senior citizens often choose fixed deposits since they are easy to open and require little paperwork. Senior Citizen Fixed Deposit schemes are now available in both online and offline modes.
  5. Generally all Senior Citizen FD schemes allow senior citizens to claim interest according to their preferences and financial requirements (quarterly, annual, bi-annual, or even monthly payout of interest).
  6. One of the major benefits of a fixed deposit is that you can leverage your fixed deposit and apply for a loan. It's simple to obtain a loan against an FD, and generally few documents are required. An added benefit is that interest rates on loans against FD are usually lower than that of a regular loan.

Documents required for opening a Senior Citizen FD account

Typically, the following documents are required to open a Senior Citizen Fixed Deposit Account:

  1. Duly filled and signed Senior Citizen Fixed Deposit form/application.
  2. Photo Identity Proof of the depositor
  3. Age Identity Proof of the depositor
  4. Address Identity Proof of the depositor
     

Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.

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We explain what are tax saving fixed deposits.
First Published: 21 Aug 2022, 11:18 AM IST