Given the rising inflation, senior citizens should carefully choose their investment vehicles such as FDs, MFs etc. to ensure they generate inflation-beating returns both in the short and long term. This step has become critical in the light of financial insecurities seniors face as evidenced in a recent report published by the NGO HelpAge India. The study, “Ageing in India: Exploring Preparedness & Response to Care Challenges”, states that 65 per cent of senior citizens are financially insecure.

It further shows that 74 per cent of senior citizens have savings accounts, while 35 per cent have investments in gold and 15 per cent have term deposits. The report also highlights that a significant number of India’s senior population is financially unprepared.

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Here are some tips for senior citizens to wisely invest in FDs to ensure optimum results.

Low-Risk Assets

Senior citizen FDs are low-risk investment vehicles that offer fixed returns. These FDs typically offer interest rates ranging from 3.25 per cent to over 7 per cent annually, depending on the tenure and the scheme. Seniors usually get 25-50 basis points higher rates than the general public. Additionally, tax deducted at source (TDS) will not apply to senior citizens earning interest income up to Rs 50,000 annually. In the case of general public, it is Rs 40,000. Also, products like tax-saver FDs offer tax benefits under Section 80C of the Income Tax Act 1961.

Compare Rates

Senior citizens looking to invest in FDs must compare the interest rates of different banks before selecting one. Also, it is vital to research the banks for other associated costs with the FD scheme. Comparing the rates of different banks will allow them to select the best one as per their requirements. You can also compare the types of facilities, liquidity and interest rates they provide and whether they address their needs holistically besides offering optimum returns.

FD Laddering

Additionally, FD laddering is an effective strategy to ensure stable cash flows or liquidity at various intervals to meet their financial needs and generate optimum results for financial goals.

The strategy involves creating multiple FDs with varying maturity dates, allowing regular access to funds. This approach reduces the risk of renewing large FDs at low interest rates, ensuring access to cash without premature breakage. Fixed deposit laddering can maximise interest earnings by capitalising on higher rates while maintaining adequate liquidity. It can be personalized to suit individual needs and improve tax efficiency by spreading out liabilities.

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Switching FDs

Auto-renewal in FDs ensures that the proceeds are reinvested in an FD of the same tenure at maturity. This option allows the gains to continue even after the FD matures. However, this approach can be costly during a rising-interest rate regime. Enabling auto-renewal ensures that FDs are reinvested each time they mature, ensuring no missed returns. However, it may not be the best alternative for all. So, you should keep assessing which bank offers the best rates so that you can switch to the one offering the highest returns for maximum gains.

FD Tenure

FD tenure refers to the maturity period, which can be short-, mid-, or long-term. Short-term FDs range from 7 days to 1 year, mid-term from 1-5 years, and long-term from 5-10 years. Longer tenure FDs typically offer higher interest rates. If you do not need cash in the immediate future, go for a long-term FD that pays higher returns. Or better yet, you can choose the laddering strategy that covers all your short-, mid-, and long-term needs.