For most of the retirees, retirement can be a stressful time because it is the end of active working life and employment. Unless there are other sources of income, it is the end of regular monthly income. Nonetheless, a well-planned retirement will bring in gratuity money, PF funds and other investments that were made during the working period. However, these funds are limited and are probably the only money you have to survive for the rest of your life; unless a risk-free investment is made that will ensure capital security and assured returns. A secure way of extra income that will probably reduce the financial burden is well-appreciated. Life with a regular income is much easier, but a good investment will prevent you from exhausting retirement funds and live a stress-free life. If you are someone who cannot afford risks on capital earned throughout your working life and want a safe investment option, then Fixed deposit investment is your best option. Fixed deposits, also known as FDs are the best bets for senior citizens due to its innumerable benefits it has to offer.
What are Fixed Deposits?
Fixed Deposits are one of the most popular means of investments options in India for senior citizens as well as youngsters. Also, it is a conservative way of investing money that has proven beneficial for investors for years. FDs are a financial tool to invest money for assured returns and a higher rate of interest than regular savings account until the chosen maturity date. It is implemented by banks and NBFIs (Non-Banking Financial Institutions). An investor puts in a lump sum money in a bank for a fixed period of time like one year, five years or 10 years, at a specified rate of interest. At the end of the tenure, or date of maturity, the investor receives the entire amount invested with compound interest applicable on the amount invested. Sometimes, FDs are also referred to as term deposits. They are assured and safe investments for senior citizens that are easy to open.
Why FDs are Best Bets for Senior Citizens?
Safe investment: Apart from Senior Citizen Saving Scheme (the Indian government-sponsored investment scheme), FDs are best investment plans for senior citizens of India. Many retirees prefer to put in their excess money or retirement fund in a place where it is protected and grows. FDs are one such investment option where the money is safe but not stagnant. It earns them decent interest that can be considered as a source of income after retirement.
Special Bank interest rates for Senior Citizens: Anyone above the age of 60 years is not advised to invest in regular fixed deposits. A senior citizen fixed deposit is more likely to fetch a higher interest rate than a regular one. Most of the banks provide a higher interest rate on a 50 basis point for senior citizens. One basis point, otherwise known as bps, is one-hundredth of a percentage point.
In 2018, some of the top banks FD rates for senior citizens for the tenure of 5 years are as follows:
ICICI Bank: 7.00%
Yes Bank: 7.71%
Secure investment and assured returns: Unlike many other investment options, this one is one of the most reliable and secure ones because it is free from market fluctuations. Investment in mutual funds and other financial instruments might offer a better interest rate, but they involve risk and are subject to the market rates. Here, the returns are pre-determined at the time of investment. It is assured return depending on the rate of interest, tenure and the deposited amount chosen by the investor.
Additional Tax Benefits: The biggest reason why FDs are the best bet for senior citizens is a tax deduction on its earnings. Under Section 80TTB, senior citizens who are also the residents of India can avail tax rebate up to Rs. 50,000 on interest earned upon bank deposits. Previously, sixty plus were exempted only from deposits in a savings account, but the new amendment keeps them exempted from all bank deposits.
Additionally, no TDS will be deducted from the senior citizens fixed deposit interest if it is less than Rs. 50,000. If interest income surpasses this limit, the TDS will be charged on entire interest income. A 10% of TDs is charged to those who have provided their PAN numbers and 20% for those who have not mentioned their PAN numbers.
Flexible Investment Plan: Among many other, Fixed Deposits is one of the most flexible senior citizen schemes in banks. Banks allow investors to choose how they wish to receive the interest incomes. It is up to the person investing whether they want it monthly, quarterly, half-yearly or yearly. Not only that, but they also offer flexible maturity timeline. Though this feature varies from bank to bank, from 7 days to 10 years, you can open an FD for the time period that suits you.
Investment with minimal amount: This investment option in India for senior citizens and others does not require a huge capital. One can open an FD with a small amount, too.
Emergency fund: In today’s stressful life, one should always be prepared for a time of need or trouble. This investment is a saving for a rainy day. It can be used to avail an emergency loan as and when required. Many financial institutions offer this facility that has acted as a savior for many people. It provides you something to rely on.
Easy withdrawal: Also, you may have agreed upon a maturity date while signing up for a Fixed Deposit with a bank. However, these funds can be easily withdrawn anytime. Though the interest income will be affected, it does act as an extra source of finance in unexpected times.
These are a few benefits of opening a fixed deposit for senior citizens. Apart from just banks, there are post office schemes for seniors, too. One of the most reliable ones is post office fixed deposits. It is an alternative to fixed deposits implemented by banks. Similar to a regular fixed deposit offered by banks, this scheme is implemented by Indian Postal services wherein the person earns assured returns on the money deposited. This is more popular in rural areas and has a maximum maturity period of five years. At times, post office fixed deposit offers a better rate of interest than banks.
The current rate is as follows:
1 year: 6.6%
2 years: 6.7%
3 years: 6.9%
5 years: 7.4%
The good news is that this Post office investment options in India for senior citizens also falls under exemption policy of section 80TTB. This investment can only be made by a resident of India. NRIs are not allowed to open Fixed Deposit accounts in post offices.
To be eligible for sr citizen saving scheme like FD, you need to be 60 years of age and have a proof of it. Besides age proof, you also need to provide the bank or post office with Aadhar card, PAN card, and photograph.