Several banks, like State Bank of India, HDFC Bank, ICICI Bank, and Bank of Baroda had introduced senior citizens special fixed deposit (FD) schemes last year in response to the COVID-19 pandemic, offering higher interest rates on fixed deposits. Though the special FD schemes of ICICI Bank & Bank of Baroda ended in March, SBI and HDFC Bank have recently extended their special FD schemes for senior citizens till June 30, 2021. No doubt it sounds good for risk-averse investors like senior citizens but should they go for these schemes. Let's find out.
SBI Special FD Scheme
The State Bank of India (SBI) had recently extended its special fixed deposit scheme for senior citizens until June 30. SBI's 'WECARE' Senior Citizens' Term Deposit scheme for senior citizens was revealed in May by the country's largest lender. During the coronavirus pandemic, a special FD scheme was introduced to provide senior citizens with a higher interest rate. Senior Citizens will receive an additional benefit of 30 basis points (over and above the current 50 basis points) on their retail TD for a tenure of 5 years and above under this special FD scheme. The interest rate on SBI's special FD scheme for senior citizens will be 80 basis points (bps) higher than the general public. SBI currently offers a 5.4 percent interest rate on five-year fixed deposits to the general public. Whereas for the same tenure senior citizens will get an interest rate of 6.20% under the special FD scheme of SBI.
HDFC Bank Special FD Scheme
The special fixed deposit scheme for senior citizens offered by private sector lender HDFC Bank was recently extended for the third time. Senior Citizen Care FD is a special fixed deposit (FD) scheme offered by the bank for senior citizens. On these deposits, HDFC Bank gives a 75 basis point (bps) higher interest rate. The interest rate on a fixed deposit made by a senior citizen under the HDFC Bank Senior Citizen Care FD will be 6.25 percent. These rates are in effect from 13 November 2020. Senior Citizens who want to lock a fixed deposit less than Rs 5 crore for a period of 5 years one day to 10 years during the special deposit deal from 18th May 2020 to 30th June 2021 will get an additional premium of 0.25 percent over and above the existing premium of 0.50 percent.
Should senior citizens invest in special FD schemes?
The Reserve Bank of India (RBI) agreed to maintain the repo rate unchanged at its recent bi-monthly monetary meeting on April 7, 2021. The central bank has maintained the key rates untouched for the sixth time in a row. The repo rate and reverse rate stand at 4% and 3.35 percent, respectively, following the decision. No adjustment in policy rates is positive news for fixed deposit (FD) holders, as banks are unlikely to reduce FD interest rates further. As a result, short-term investments can be a good bet here. Short-term investment options are better for investors who have a limited sense of risk and expect stable returns, such as senior citizens. Investors prefer short-term investments because they are extremely liquid and can be used to cover planned near-term expenses. Individuals' main aim of short-term investments is to secure their wealth while still maximising returns. And by considering the same special FD schemes of banks like SBI and HDFC can be a good bet here. On the other side, interest income up to Rs 50,000 per year is tax-free for senior citizens under Section 80 TTB of the Income Tax Act 1961. Interest from bank FDs, bank RDs, post office FDs, post office RDs, and savings accounts is covered under this section. Fixed deposits for a tenure of 5 years or 5-Year Tax Saving FDs are tax-free up to Rs 1.5 lakh, but the interest earned on them is taxable. Last but not the least thing to consider by senior citizens here is that their deposits are covered up to Rs. 5 lakh in both principal and interest under DICGC or Deposit Insurance and Credit Guarantee Corporation is a wholly-owned subsidiary of the Reserve Bank of India.