Fixed deposits are perhaps one of the most preferred traditional investment options across generations. Older people tend to prefer fixed deposits because of the safety and security they offer. On the other hand, for younger investors who choose market-linked investments, FDs offer a way to reduce their overall portfolio risk.
That said, there are certain benefits that FDs for senior citizens offer. One of the most prominent advantages is higher interest rates on deposits held by senior citizens. Let’s take a closer look at how this feature works.
Higher FD Interest Rates for Senior Citizens
The interest rates on fixed deposits in India are traditionally linked to the Reserve Bank of India’s repo rate. This is simply the rate at which the central bank lends funds to other commercial banks in the country. If the RBI raises the repo rates, the cost of borrowing increases for banks. So, in order to meet their cash reserve requirements through other means, banks also raise their FD interest rates to attract more depositors.
Similarly, if the RBI reduces the repo rates, the FD rates will also fall. With the central bank having hiked repo rates for the better part of 2022, and with the repo rates now remaining unchanged, experts suggest that fixed deposit rates may be peaking now.
What’s more, nearly all leading banks and financial companies offer higher interest rates on FDs for senior citizens. Some banks may offer interest rates that are higher than the regular rates by 0.25%, while others may offer an additional 0.50% on FDs for senior citizens.
Housing finance companies also offer the option to invest in fixed deposits. Like bank FDs, these fixed deposits also typically offer favourable interest rates for deposit account holders over the age of 60. For example, senior citizens looking for higher returns can take advantage of the preferential PNB Housing FD rates or rates offered by other such housing finance companies.
Impact of Higher FD Rates for Senior Citizens
As you may have gathered, the key benefit of higher rates on FDs for senior citizens is enhanced gains. Let’s look at a small example to understand how this works.
Say you are below 60 years of age. And you invest ₹5 lakhs in a cumulative fixed deposit offering interest at 7% per annum, for a period of 3 years. In that case, the interest that you earn at the end of the 3-year tenor will be ₹1,15,720.
On the other hand, for the same FD, a senior citizen will earn interest at 7.50%. This means that the total interest for this period will turn out to be ₹1,24,858 in the case of FDs for senior citizens. As you can see, the interest is higher by over ₹9,000.
Other Benefits of FDs for Senior Citizens
In addition to higher interest, FDs for senior citizens also offer some other advantages. Here is a closer look at these benefits.
Higher Threshold Limit for TDS Deduction
Generally, if the total interest from all the FDs you have with a bank exceeds ₹40,000 annually, the bank will deduct TDS from the FD interest at 10%. However, for senior citizens, this limit is ₹50,000.
Option to Avoid Tax Deduction at Source
This benefit is for senior citizens whose total taxable income during a financial year does not exceed the basic exemption limit under the Income Tax Act, 1961. If you belong to this category, you can submit Form 15H to your bank to avoid tax deduction at source.
5 Things to Keep in Mind Before Opening an FD for Senior Citizens
Aside from the above details, there are some other important aspects that you should keep in mind before opening an FD for senior citizens. Check out these pointers below.
Compare FD rates from different banks and financial institutions to optimise returns.
FD rates vary according to the FD tenor as well.
Ensure that you factor in the post-tax returns before you invest in an FD.
Choose between cumulative and non-cumulative FDs as per your financial requirements.
Make sure you assign a nominee to your fixed deposit account.
The bottom line is that almost all banks in India offer higher interest rates on FDs for senior citizens. As mentioned above, many housing finance companies also offer preferential rates of interest for deposit account holders over the age of 60. For instance, PNB Housing FD rates are higher by 0.25% for senior citizens, for deposits up to ₹1 crore (this may be subject to change as per the company’s policies).
So, if you are above 60 years of age, or if someone in your family is, you can take advantage of this feature of fixed deposits. However, before you invest in a fixed deposit, ensure that you keep the important pointers outlined above in mind. This will help you make an informed investment decision.
The above is a sponsored post, the views expressed are those of the sponsor/author and do not represent the stand and views of Outlook Editorial.