Why senior citizens have to choose wisely between small savings, FDs

Among all the small savings schemes, Senior Citizen Savings Scheme (SCSS) offers the highest interest rates to senior citizens. The scheme offers 8.2% p.a. for a five-year tenure, which beats the five-year senior citizen FD rates of PSU banks and large private sector banks by more than 100 bps. Only a couple of small finance banks like Suryoday Bank, Unity Bank, DCB Bank and Fincare Bank offer higher FD interest rates to senior citizens than the SCSS rates.

Moreover, investments in SCSS qualify for tax deduction under Section 80C. While depositors can also open tax saving bank FD schemes to save tax under Section 80C, the interest rate of SCSS surpasses tax saving bank FD rates by a wide margin, barring Suryoday Bank, DCB Bank and Fincare Bank.

In case of capital protection and income certainty, SCSS scores higher than bank FDs. Being managed by the Union Finance Ministry, SCSS depositors are covered under sovereign guarantee, the highest form of capital protection and income certainty available to any investor/depositor in the country. In case of bank FDs, cumulative bank deposits (including FD, RD, savings account and current account) of up to Rs five lakh of each depositor maintained with each scheduled bank is covered under the depositor insurance program from DICGC, an RBI subsidiary. Thus, individuals seeking higher protection for their bank FDs can spread their FDs across multiple scheduled banks in such a manner that their cumulative bank deposit with each of those scheduled banks does not cross Rs five lakh. In case of bank FDs, banks set 60 years as the cut-off age for availing higher interest rates available to senior citizen FD rates, with a few banks offering additional interest rates to super senior citizens, that is those aged 80 years and above. While SCSS can be opened by individuals aged above 60 years, a five-year concession in the minimum age criteria is offered to retired civilian employees provided they open their SCSS account within one month of receiving their retirement benefits. The minimum age criteria for retired defence employees is 50 years provided they open the SCSS account within 1 month of receiving their retirement benefits. Thus, SCSS allows many retired individuals an option to earn higher returns from their retirement benefits, which is otherwise unavailable through bank FDs.

The only major feature where SCSS lags behind the bank FDs is the cap on total investment. While an individual can open multiple SCSS accounts, his total investment in SCSS cannot exceed Rs 30 lakh. In case of bank FDs, there are no upper caps on the total FD exposure for the depositors. Thus, senior citizens having investible surplus in excess of Rs 30 lakh would have to consider bank FDs or other investment options to park their surplus. Thus, under the present circumstances, senior citizens having an investment horizon of five years, seeking regular income at quarterly intervals and/or wishing to save tax under Section 80C would find SCSS more attractive than bank FDs due to their higher interest rates. Exceptions would be Suryoday Bank, DCB Bank, Unity Bank and Fincare Bank. SCSS also allows some retired individuals to avail higher interest rates before reaching the age of 60 years, provided they open SCSS accounts within a year of receiving their retirement benefits.

The only major disadvantage of SCSS is the cap of Rs 30 lakh on maximum investments allowed for each depositor. Individuals having investing surpluses exceeding Rs 30 lakh would have to consider banks FDs, debt funds or other investment options for parking their surpluses.

(The writer is co-founder and CEO of Paisabazaar)