Senior citizens, who commonly place their retirement funds on fixed income vehicles such as fixed deposits (FDs) are now dealing with difficult circumstances as the interest rates are a decade low. And considering the same some banks have introduced special fixed deposits that deliver 30-80 basis points higher than regular fixed deposit rates in order to provide a solution for senior citizens. That being said, the interest rates paid by these FDs vary from 6.20% to 6.30%, whereas banks, namely Bandhan Bank and IDFC First, bid a 7.15% and 7% higher interest rate on their savings account. Capital invested in savings accounts has no lock-in and, in the event of withdrawal no penalty is imposed. Should senior citizens therefore opt for these special FDs that normally have a lock-in period and penalty on early withdrawal consider savings accounts that deliver higher returns? Let's crack this confusion.
A Comparison Between Bank FDs and Savings Accounts
Currently, the State Bank of India (SBI) provides the general public with a 5.4 percent interest rate on a five-year FD whereas an interest rate of 6.20% is provided to senior citizens under the special FD scheme of the bank. The special FD scheme for senior citizens of ICICI Bank is named ICICI Bank Golden Years. The bank pays a higher interest rate of 80 bps on such deposits. ICICI Bank Golden Years FD scheme proposes an interest rate of 6.30 percent per annum for senior citizens. HDFC Bank's special FD scheme is named HDFC Senior Citizen Care for senior citizens. On these deposits, the bank is giving a 75 bps higher interest rate as of now. Which means that the interest rate applicable to the FD will be 6.25% for a tenure of more than 5 years if a senior citizen goes for HDFC Bank Senior Citizen Care FD. In the range of 1-1.5 percent on these FDs, premature withdrawal penalties exist. As of now, these FDs are only accessible until March 31. That being said, Bandhan Bank is promising an interest rate on its savings account of up to 7.15 percent for a minimum and maximum balance limit of Rs 1 lac up to Rs 50 Cr.
5 Best Savings Accounts With Higher Interest Rates
|Banks||Interest Rates per annum|
|Bandhan Bank||3 to 7.15%|
|IDFC First Bank||3.5 to 7%|
|RBL Bank||4.75 to 6.75|
|IndusInd Bank||4 to 6%|
|Yes Bank||4 to 5.5%|
Considering the long tenure of 5 years, we believe that one should not lock in their whole money in special FDs instead of diversifying their investments across different investment vehicles. When it comes to other investment options for senior citizens apart from banks FDs, Senior Citizen Savings Scheme (SCSS), Pradhan Mantri Vaya Vandana Yojana(PMVVY), and Post Office Monthly Income Scheme(POMIS) are taken first into consideration. With a maturity period of 10 years PMVVY comes with an interest rate of 7.4% along with monthly, quarterly, semi-annual or annually payout options.
Whereas for a maturity period of 5 years which can be further be extended to 3 years a senior citizen can deposit up to a limit of Rs 15 lakh under SCSS and can reap good returns at 7.4% per annum. Finally, coming to POMIS it also comes with a tenure of 5 years with an interest rate of 6.6%, but the best takeaways of this scheme is that it gives you a monthly payout option as the name suggests. By summing up you can diversify your investment across special FDs and savings account with higher interest rates if you are going to park higher amount. That being said, one should note that the bank can adjust the interest rate without any advance warning while holding the money in a savings account, so one should go for special FDs as the interest rate will remain stable for the entire tenure or lock-in period.