Senior citizens are generally offered deposit rates that are 25-50 basis points (bps) higher than those offered to other depositors. 

Many banks have raised their fixed deposit interest rates in response to the Reserve Bank of India (RBI) increasing the repo rate. 

So, where should you invest your money as a senior citizen? The government-backed Senior Citizens’ Savings Scheme (SCSS) or bank fixed deposits? 

Bank FDs vs SCSS: Highest rates

An HDFC Bank ‘Senior Citizens Care FD’ offers 7.75 per cent interest for a 5-10-year tenure. This scheme is available till March 31, 2023. 

The State Bank of India offers seniors a comparable rate of 7.50 per cent on fixed deposits for 5-10 years with its “SBI Wecare” deposit scheme. For a 400-day tenure deposit, SBI offers seniors 7.60 per cent.

A dedicated fixed deposit scheme by ICICI Bank for senior citizens, the Golden Years FD, offers senior depositors a rate of 7.50 per cent for deposits of five- to 10-year tenure. The scheme is valid till April 7, 2023. 

These are the highest rates offered by these large banks.

In the latest interest hike last week, Yes Bank made the highest hike in the 15-36-month interest rates. The senior citizens’ deposit rate at Yes Bank is 8 per cent for the 15-36 month tenure. There are many small finance banks, too, offering higher rates than the above mentioned banks.

Consider now the government’s SCSS, for which Budget 2023 raised the maximum investment limit to Rs 30 lakh. SCSS investments currently earn 8 per cent per annum in interest.

Senior Citizens’ Savings Scheme

You can open an SCSS account if you are at least 60 years old on the date of opening or 55 years old if you have retired under superannuation, voluntary retirement scheme (VRS) or special VRS. The minimum age limit for retired defence personnel is 50 years.

The minimum investment is Rs 1,000 and the maximum investment is Rs 30 lakh.

The interest earned under SCSS is not tax-free, but deposits in SCSS qualify for deduction under Section 80C of the Income-tax Act, 1961 for up to Rs. 1.5 lakh.  A quarterly interest income is earned from the date of deposit to March 31, June 30, September 30, and December 31.

The scheme matures after five years and may be extended for a further three years. A premature closure of the account is possible by paying a penalty of 1-1.5 per cent.

Comparison

SCSS offers interest rates 25-50 bps higher than the senior citizens’ bank deposits. 

But SCSS only allows investments up to Rs 30 lakh which cannot sustain an easy retired life considering the inflation rate, whereas banks will support investments up to Rs 2 crore under FDs.

Liquidity-wise, bank FDs trump SCSS as they offer deposits ranging from seven days to 10 years. 

Here it should be noted that more liquid an FD gets, the lower the deposit rate it offers in comparison to an SCSS investment. Interest from SCSS can be drawn every quarter, whereas FDs only gives you the interest income along with principal at the maturity of the deposit tenure.

The choice between bank FD and SCSS would ultimately depend on your liquidity needs and the amount that you plan to invest.