Again, interest rates on small savings schemes appeared unchanged for the following quarter 30 Dec 2020. On the other hand, banks have been gradually reducing FD rates currently and also since January 2019, the repo rate has been decreased by 250 bps (or 2.5 per cent) by the Reserve Bank of India (RBI). The leading giant of India SBI on one-year deposit is now offering 4.90 per cent (taxable) returns for senior citizens after steadily declining FD rates. Whereas HDFC Bank's one-year FD is offering 5.10 per cent and ICICI Bank's one-year FD is offering 5 per cent. Similarly, post office time deposit is promising an interest rate of 5.5 per cent one 1-year deposit. Well, let's now evaluate the returns after the tax deductions.
Both the bank FD and the post office time deposit are taxable accordingly, depending on the tax structure and the tax slab under which a taxpayer resides. Therefore, the return after tax exemptions for SBI's one-year FD is 3.37 per cent and 3.78 per cent for the post office time deposit when a taxpayer is in the maximum tax bracket, i.e. 30 per cent (along with a cessation of 4 per cent). In the case of a five-year fixed deposit, the interest rate contrast is stronger. 6.7% interest on five-year post office deposits are promised, while 5.40% is given by the five-year FD of SBI. 5.30 per cent is offered by HDFC Bank's five-year deposit and 5.35 per cent is given by ICICI Bank. Also, there are tax excluded interest rates that imply a 30 per cent tax slab: for SBI's five-year FD, it is 3.71 per cent and for a five-year post office time deposit it is 4.60 per cent respectively. Senior citizens should note that banks usually have interest rates that are 0.50 percent higher than interest rates on fixed deposits. There is no such allowance available to post office time deposits for senior citizens.
The rate of return for senior citizen bank FDs is defined by many of the major banks as follows: SBI one-year FD is 5.40 per cent, HDFC Bank one-year FD is 5.60 per cent and ICICI Bank one-year FD is 5.50 per cent. In order to offset the impact of declining FD rates for senior citizens, banks have also introduced special FD schemes for such holders. These special FD schemes fetch higher interest rates over a specific tenure on and above 0.50 per cent. For e.g. SBI's We Care deposit scheme guarantees 0.30 per cent over and above the existing rate of interest, i.e. 6.2% respectively for a lock-in period of 5 years. Similarly, HDFC Bank proposes 0.25 percent over and above the current interest rate if a senior citizen wishes to invest for a term of five years and one day. Additionally, ICICI Bank's Golden Years FD offers 0.30 per cent for a minimum term of 5 years and one day, respectively. As opposed to bank FDs, the five-year post office time deposit here also has higher interest rates for senior citizens.
|Post office time deposit||6.70%|
|ICICI Bank Golden Years FD||6.30%|
|HDFC Bank Senior Citizen Care FD||6.25%|
|SBI We Care FD||6.20%|
Where to park my surplus money you ask?
Since they already have low-interest rates, investors must find substitutes other than bank FDs. A comparable liquidity condition is provided by a few other substitutes, such as post office time deposits. One solution to consider is RBI Floating Rate Savings Bonds, 2020 (subject to tax) which offer 7.15 per cent interest. If you are looking to park your funds in FDs for five years, a pick for you is the National Savings Certificates (NSC). For the third quarter of the current fiscal year, NSC is offering 6.8 per cent, which is undoubtedly a good bet compared to bank FDs. When evaluating an investment product, security and returns serve as a major consideration for senior citizens. For that, fixed income schemes can be deemed, such as the Senior Citizen Savings Scheme (SCSS) and Pradhan Mantri Vaya Vandana Yojana (PMVVY). Both offer returns of over 7% per annum.
Fixed Deposit interest rates were on the downturn for and are predicted to rise in during upcoming years. Returns and safety are important factors for senior citizens when considering deposits. SCSS and PMVVY are two schemes that must be properly considered by senior citizens to receive decent returns towards Bank FDs. In context, tax deductions are provided for senior citizens in order to further enhance the returns against FDs. Hence, during the falling interest rates of bank FDs, it will be good if senior citizens consider both guaranteed returns and safety.