Fixed deposits are mostly preferred by senior citizens because equity mutual funds, NPS, government bonds, and other similar investments are notoriously fragile and carry a high risk in nature. They tend to receive a consistent monthly income post-retirement by investing their savings in fixed deposits, which are still deemed to be a better investment option. Because the banks have cut interest rates on fixed deposits across the tenures following the Reserve Bank of India’s steady repo rate cut, which is now at 4%, the downward bank deposit rates have significantly lowered senior citizens’ regular income through FDs. Amid declining interest rates, some banks are still providing lucrative rates on three-year FDs for senior citizens. SBI, ICICI, HDFC, and BOB’s special fixed deposit schemes for senior citizens are set to expire on March 31. Considering the fierce rivalry of deposits, it’s no more secret that small private banks dominate the fixed deposit rate graph.
Benefits of senior citizen fixed deposits
Almost all banks provide significantly higher interest rates than those available to the general public. Some key benefits for senior citizens on FDs are as follows:
- Most banks provide senior citizens FDs with terms ranging from seven days to ten years.
- A senior citizen FD will offer them a higher interest rate of 0.25 percent to 0.75 percent than a regular FD.
- Fixed deposits do not allow for early withdrawal, so you won’t be able to get your money until the deposit matures. Additionally, if there is an emergency, the amount can be withdrawn by accepting a penalty.
- On term deposits, banks also offer a Sweep-in feature, which enables the account holder to link his or her savings account to a fixed deposit account. The advantage of this service is that it allows for the automatic transfer of surplus funds from a savings account to a fixed deposit account. It helps depositors to receive FD rates on their savings accounts, with the possibility to break the FD and use the funds at any time.
- A senior citizen fixed deposit can also be used as a tax saver deposit of 5-Years, allowing for tax deductions under section 80C of the Income Tax Act.
- Elderly people can opt from a variety of interest payout options, with interest being credited to the holder’s savings account on a monthly, quarterly, half-annual, or yearly basis.
- Regular interest payouts will provide a stable and credible income stream for seniors in their post-retirement periods.
- Nomination facilities are also provided on fixed deposits, allowing senior citizens to name a nominee.
TDS charged for senior citizens on fixed deposit schemes
Senior citizens with interest income from FDs, savings accounts, and recurring deposits can claim tax exemption up to Rs 50,000 per annum according to Section 80TTB of the Income Tax Act. The bank cannot deduct any TDS if the senior citizen’s interest income from all FDs with the bank is less than Rs 50,000 in a year. If you do not submit your PAN number to the bank, they will subtract 20% TDS from your account. As a result, double-check that you have submitted your PAN number to the bank. However, as a senior citizen, you can submit Form 15H to the bank to avoid TDS.
An important note for senior citizens
Finance Minister Nirmala Sitharaman introduced the Union Budget 2020 to Parliament on February 1, 2020. It approved raising deposit insurance from Rs. 1 lakh to Rs. 5 lakh for bank account holders, which was previously set at Rs. 1 lakh. The Reserve Bank of India’s Deposit Insurance and Credit Guarantee Corporation (DICGC) is a wholly-owned affiliate. Depositors’ deposits at a bank are covered by deposit insurance. Commercial public banks and small finance banks are included under this deposit insurance policy whereas deposit insurance does not cover company deposits. In a scheduled bank, whether it is a commercial or small finance bank, you are insured for up to Rs. 5 lakh which covers both principal amount as well as interest.
3 Year FD For Senior Citizens
Small private banks are currently providing senior citizens interest rates as high as 7.50 percent on three-year fixed deposits. These three-year FD interest rates are higher than those provided by major private and public sector banks. Yes Bank, for example, offers 7.50 percent interest on three-year FDs for senior citizens, while DCB Bank and RBL Bank provide 7.25 percent and 7.10 percent interest on three-year FDs, respectively. On three-year FDs, pioneering private banks such as Axis Bank and Kotak Mahindra Bank give 5.9% and 5.6 percent interest, respectively. For elderly people, ICICI Bank and HDFC Bank provide 5.65% interest on three-year fixed deposits. Canara Bank and Union Bank of India provide the highest interest rate among public sector banks, currently 6% on three-year fixed deposits for senior citizens. For senior citizens, Bank of India and State Bank of India (SBI) give 5.8% interest on three-year fixed deposits. Hence, below are the top 5 public and private sector banks that are currently providing higher interest rates to senior citizens on 3 years fixed deposits.
|Private Sector Banks||ROI in %|
|Public Sector Banks||ROI in %|
|Bank of India||5.80|
|State Bank of India||5.80|
|Punjab & Sind Bank||5.75|
|Source: Bank websites|
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