How are FDs beneficial for Sr Citizens



FDs or fixed deposits have emerged as a veritably safe, secure and attractive investment proposition. Bank FDs have been a preferred source of investment for most investors for a long time and that was not only due to the attractive FD interest rates but also due to the attractive FD interest rates for senior citizens. Retired people often preferred FDs.   
The process was quite simple. You walk into your bank and open a fixed deposit account and it just takes less than hour. You can even do it online. Then you can make your fixed deposit investment either by cheque or by direct debit to your bank account. Even the rates on these FDs are very attractive considering their low risk. In addition, most banks and NBFCs offer special incentivized interest rates on fixed deposit for senior citizens in India.   
Typically, senior citizens above the age of 60 would be retired and mostly free of routine responsibilities. The retirement also marks the end of your working career and so you don’t have a regular source of income. In other words, your existing investments have to be smartly and prudently invested in such a way that your money is safe and also earns that little bit extra so that these senior citizens are left with some extra money in their hands. Normally, when investing as a senior citizen, minimising risk and earning guaranteed returns is the principal objective. That ensures you safeguard the wealth accumulated over the years. It is in this context that FDs or fixed deposits can be extremely useful to senior citizens.  

Basic attractiveness of FDs for senior citizens

A fixed deposit of a bank or a reputed NBFC can be an apt investment for a senior citizen. This is for a number of reasons. While FDs by NBFCs are not guaranteed, you can be rest assured with FDs from large NBFCs as they also additionally give the extra return compared to bank FDs. From the safety of investment to guaranteed returns, a fixed deposit is a safe haven for retired senior citizens.    
This the main reason why the investors who are approaching retirement or those who are already retired prefer to invest in this low-risk fixed deposit option to safeguard their wealth. It is possibly the best combination of higher returns, the safety of debt and the liquidity of a bank deposit. That makes almost an unmatched proposition for senior citizens.


Fixed deposits offer higher interest rates to senior citizens

One of the big attractions of the fixed deposits for senior citizens is that Indian banks offer an incentivized higher rate of interest to senior citizens. The table below captures the latest rates of FDs of various tenors issued by the SBI.    


Revised Rates For Public w.e.f. 14.06.2022 (%)

Revised Rates for Senior Citizens w.e.f. 14.06.2022 (%)

7 days to 45 days2.903.40
46 days to 179 days3.904.40
180 days to 210 days4.404.90
211 days to less than 1 year4.60<5.10
1 year to less than 2 year5.305.80
2 years to less than 3 years5.355.85
3 years to less than 5 years5.455.95
5 years and up to 10 years5.506.30

Data Source: SBI

As you can see from the above table, the interest rates for senior citizens on bank FDs are meaningfully higher. For a 1 year tenure, the spread that senior citizens earn on bank FDs over regular FDs is 50 basis points. However, as you go to 5 year FDs, the spread over regular FDs goes up sharply to 80 basis points.   
This trend is not only seen among banks but also among top NBFCs. The issuers of fixed deposits offer higher interest rate to senior citizens as compared to regular investors. Take the case of one of the leading NBFCs in India viz. Bajaj Finance. They also offer an additional interest rate of 35 basis points to senior citizens paying them 8.7% instead of 8.35% to regular investors. You can also see that the typical yield to the investor on an NBFC FD is much higher as compared to the banks. Despite the relatively higher risk, the attractively higher returns is a key reason why many senior citizens also prefer the NBFC Fixed Deposit.

In fact, there is also the auto renewal facility that is available in most FDs and the senior citizen can opt for the same to avoid the hassles of remembering due dates. If that is done, then your maturity proceeds will be reinvested and it results in compounding of returns. Some of the newer banks and NBFCs also pay you additional interest rate for renewal of these fixed deposits. 

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Flexible pay-out options to meet recurring expenses

One of the big advantages in fixed deposits or FDs is that they are fairly flexible. The FDs can be structured in such a way as to meet recurring and non-recurring expenses. By non-recurring expenses, we imply some kind of capital spending, repairs and renewals to your house, gifting to your children etc. the FD can be structured to meet such needs.    
Many of the recent FD issues also offer a ladder facility wherein your FD can be stepped up over time to meet different goals. Also, there are monthly and quarterly pay-out options on interest rates which are extremely useful for senior citizens looking for regular flow of income. That way you also have funds at your disposal to tackle household needs on time.

Have an emergency, just pledge your FD

Just as you can pledge your property or equity shares to raise loans for emergencies, a similar facility is available for FDs also. The facility is inbuilt in FDs issued by banks but even in the case of NBFC FDs, that facility is offered. In most cases, the process to get funding against FD collateral is very simple. You just need to create a pledge and the loan is available in less than a day. In an emergency, you don’t need to break the FD, but just get a loan against the FD. The FD continues to earn interest, although your loan will entail an interest pay-out. You can repay the loan any time and revoke the pledge on your FD.

Tax benefits on long term bank FDs

One challenge in any type of FDs is that the interest is fully taxable at peak rate. However, if you are a senior citizen, you get the benefit of Section 80TTB of the Income Tax Act which exempts interest income on bank deposits up to Rs50,000 a year for senior citizens. In addition, if you opt for long term bank FDs of 5 years tenure, the FD investment is also eligible for Section 80C benefits under the Income Tax, up to the outer limit of Rs150,000 per year. So even tax-wise, FDs can be quite wise.   
To sum it up,  FDs offer safe and guaranteed returns amidst uncertainty in market returns. These FDs can be created online so they are easy to initiate and much easier to monitor. Especially for senior citizens, FD as an investment option is the best investment scheme

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