After retirement, the first priority of every person is to keep his savings completely safe and get regular income from it. Bank Fixed Deposit or FD has always been the most reliable investment medium for senior citizens who stay away from the volatility of the stock market and the risks of mutual funds. Major banks of the country are offering special interest rates for senior citizens, where up to 8.50 percent annual interest is being given on FDs with a long tenure of 5 years.
In the banking system controlled by the Reserve Bank of India, this interest rate is not only capable of beating inflation, but also guarantees a secure future. This has emerged as a great opportunity for retired employees, pensioners and elderly citizens of the entire country including Uttar Pradesh, Delhi, Bihar, Madhya Pradesh, Rajasthan to earn maximum profits on their savings.
Small finance banks and some private sector banks are offering higher returns on fixed deposits than traditional government banks. Citizens aged 60 years and above are given additional interest of 50 to 75 basis points i.e. 0.50% to 0.75% compared to normal depositors.
Suryoday Small Finance Bank is currently providing the highest interest rate of 8.50% on FD with a tenure of 5 years to senior citizens, whereas around 8.25% interest is being given to general citizens for the same period. Jana Small Finance Bank is offering interest up to 8.00% on 5 year deposit scheme. Major private banks like DCB Bank are offering interest ranging from 7.75% to 8.00% on long term FDs to senior citizens.
In Utkarsh Small Finance Bank this rate is around 7.50%. Senior citizens are getting 7.50% interest on 5 year FD in Yes Bank and 7.25% interest in AU Small Finance Bank. On the other hand, State Bank of India (SBI), the country's largest government bank, is offering interest ranging from 7.05% to 7.50% through its special VCare and general FD schemes. Large private lenders like HDFC Bank and ICICI Bank are offering interest rates ranging from 7.00% to 7.10%.
If a senior citizen deposits a lump sum amount of Rs 5 lakh in a fixed deposit for 5 years in a bank with an interest rate of 8.50 per cent per annum, then according to the compound interest formula, after completion of 5 years, he will get approximately Rs 2.61 lakh only as interest. Thus, the total payment amount at the time of maturity will be approximately Rs 7.61 lakh.
If an elderly investor wants to take interest payments on a monthly or quarterly basis, then by choosing the non-cumulative option he can ensure a fixed income like his pension every month. At the same time, investors who do not need the money immediately can choose the cumulative option, whereby on maturity both the principal amount and the accumulated interest are combined together to create a bigger fund.
Often, seeing high interest rates, doubts arise in the minds of investors whether their money in small finance banks is as safe as it is in big government or private banks. The simple and obvious answer is that all the scheduled commercial and small finance banks of the country are covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the Reserve Bank of India (RBI).
According to this rule, if in some unfortunate circumstances the bank goes bankrupt or falls into crisis, each account holder's deposits including principal and interest up to Rs 5 lakh are fully insured and protected. Financial experts recommend that if you have a large amount of capital, it is the safest and wisest decision to divide the amount into parts of Rs 5 lakh each in different banks instead of investing the entire amount in one bank.
Senior citizens should take special care of the income tax rules on their FD income. Under Section 80TTB of the Income Tax Act, citizens aged 60 years and above get full tax exemption on interest received from bank and post office deposit schemes up to Rs 50,000 in a financial year.
If the total interest income exceeds Rs 50,000 in a financial year, banks deduct tax deducted at source i.e. TDS at prescribed rates. However, if the total income of a senior citizen for the entire year is less than the income tax exemption limit and they do not have any tax liability, they can visit the bank branch at the beginning of the financial year. Form 15H Can deposited. The bank does not deduct TDS from their interest payments after submitting Form 15H. Exemption of up to Rs 1.5 lakh can also be availed under Section 80C of Income Tax in 5 year tax saver FD, in which a lock-in period of 5 years is mandatory.