Senior citizens need sufficient financial resources to meet their daily needs comfortably. It is important to develop the capability to manage finances without any stress. But, as individuals age, their earning capacity generally reduces. This makes it essential to have a robust financial plan in place. FDs could play a vital role in this plan. Their predictability and stability make them a preferred option for most individuals when it comes to retirement planning.
Features of FDs Beneficial to Senior Citizens
Here are some reasons why investing in FDs could be useful for senior citizens:
1. Higher Interest Rates
Most FD issuers offer higher interest rates to senior citizens. The additional interest rates may differ across banks and NBFCs. This increment, though seemingly small, could significantly increase their FD returns over time.
2. Flexible Tenors
FDs come with flexible tenors ranging from 7 days to 10 years. This enables senior citizens to choose a tenor that aligns with their financial goals and liquidity needs. For example, a senior citizen planning to buy a new home appliance in 3 months can opt for an FD with a 3-month tenor. This ensures that the money accrues interest until needed.
3. Periodic Interest Payouts
FDs offer the option of periodic interest payouts (monthly, quarterly, half-yearly, or annually). This feature is useful for senior citizens who may require a regular income stream. The amount could help them manage their day-to-day expenses depending on the principal deposit.
4. Tax Benefits
Under Section 80TTB of the Income Tax Act of 1961, senior citizens are eligible for a tax deduction on FDs. They can enjoy tax benefits of up to ₹50,000 on interest income earned from FDs. This provision helps reduce their tax liability, thereby maximising their net returns.
5. Safety and Security
FDs are considered to be one of the safest investment options available. This is because they are not subject to market fluctuations. The principal amount and the interest are usually guaranteed. Additionally, FDs from banks are insured up to ₹5 Lakhs by the Deposit Insurance and Credit Guarantee Corporation (DICGC). This further enhances the security of their investments in case of bank insolvency.
Current FD rates
Check the interest rates to understand how an FD for senior citizens can be beneficial. Here are the current FD interest rates offered to non-senior citizens and those above the age of 60 years:
| FD Issuer | Maximum Interest Rate for Non-senior Citizens | Maximum Interest Rate for Senior Citizens |
| DCB Bank | 8.05% p.a. | 8.55% p.a. |
| IDFC FIRST Bank | 7.90% p.a. | 8.40% p.a. |
| AU Small Finance Bank | 8.00% p.a. | 8.50% p.a. |
| Utkarsh Small Finance Bank | 8.50% p.a. | 9.10% p.a. |
| RBL Bank | 8.00% p.a. | 8.50% p.a. |
| Bajaj Finance | 8.60% p.a. | 8.85% p.a. |
*Disclaimer: The mentioned rates are subject to change at the issuer’s discretion.
Strategies for Maximising FD Benefits for Senior Citizens
Employing certain strategies could help senior citizens maximise the benefits of their FDs:
1. Laddering FDs
Laddering involves spreading investments across multiple FDs with different maturity periods. This strategy ensures liquidity, as some portion of the investment matures periodically. This enables senior citizens to reinvest at potentially higher interest rates.
2. Comparing Interest Rates
Senior citizens should compare interest rates offered by various issuers before investing. Websites of banks and NBFCs provide up-to-date interest rate information, enabling informed decisions. One can also consider checking the rates on digital marketplaces like Bajaj Markets. These enable individuals to access the details of various FD options on a single website.
3. Opting for Cumulative FDs
For those who do not need regular income, a cumulative FD may be preferred. Herein, the interest is compounded and paid at maturity. This can result in higher returns due to the power of compounding. These are particularly useful to fulfil long-term financial goals.
4. Reinvestment of Maturity Proceeds
Upon maturity of an FD, reinvesting the proceeds into a new FD may help maintain a steady growth of savings. This reinvestment can be planned to align with one’s future financial goals and needs.
Case Study: Enhancing Financial Well-being through FDs
Consider the case of Mr. Sharma, a 65-year-old retiree with a pension and a modest amount of savings. To ensure financial stability, Mr. Sharma invested ₹10 lakhs in a 5-year FD offering an interest rate of 7% p.a. Additionally, he laddered his FD investments by placing ₹2 lakhs each in 1-year, 2-year, 3-year, and 4-year FDs.
This strategy ensured liquidity at regular intervals, which he used for unexpected expenses and to reinvest in new FDs at potentially higher rates. He also opted for monthly interest payouts on one of his laddered FDs, ensuring a steady cash flow to manage his daily expenses. Moreover, his 5-year FD offers tax benefits under relevant sections of the Income Tax Act of 1961.
This well-planned FD investment strategy significantly enhanced Mr. Sharma’s financial well-being.
FDs play a crucial role in enhancing the financial well-being of senior citizens. These instruments provide a reliable source of income and financial security. By employing the right investment strategies, senior citizens can maximise the benefits of FDs. They could consider tactics like laddering, comparing rates, and reinvesting maturity proceeds. By investing wisely in FDs, senior citizens can ensure a financially secure retirement.
