FDs offer a fixed interest rate for the investment tenure along with guaranteed maturity return, which makes the capital free of investment risks.
Every individual’s risk appetite and expectations of return change with age, especially in the case of senior citizens (above the age of 60 years). A majority of people retiring at this age face the challenge of outliving their resources that they have accumulated over the years. For senior citizens, in the absence of regular earnings to compensate any losses, while investing, capital protection is the foremost important thing.
Retirement years require stable investment options. Investments where the principal amount, leave alone the interest amount, cannot be recovered can be detrimental in meeting crucial life expenses. In such circumstances, fixed deposits are one of the most reliable investment options for senior citizens. Hence, despite inflation and tax inefficiency, senior citizens predominantly look to invest in fixed deposits (FDs).
Not only limited to senior citizens, but FDs are one of the most preferred investment avenues in India. This is because of the fixed interest rate offered for the investment tenure along with guaranteed maturity return, which makes the capital free of investment risks. Also, there is no need for the investor to open a Demat account or fulfill some stringent guidelines to invest in fixed deposits, which makes the investment process easy for investors.
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Sanjay Kao, Chief Business Officer, Ujjivan Small Finance Bank, says, “Fixed deposits provide guaranteed returns at a pre-specified interest rate, which ensures the investor gets the assured amount irrespective of market volatility. At the same time, while investing, FD returns can be timed to ensure necessary liquidity according to life events. Features like periodic pay-outs can help in meeting monthly expenses.”
In urgent situations, a loan can be availed against the deposit to address liquidity concerns. Instead of breaking your investments, during an emergency you can simply opt for a loan against your fixed deposit. Banks offer this alternative to the investors, instead of breaking the deposit prematurely. Also, even after taking a loan against your fixed deposit, you still continue to earn interest on the deposit. Experts suggest investors can opt for a loan against fixed deposits when they are looking for a better loan rate as compared to personal loans, which usually ranges from 14 to 30 per cent per annum.
Additionally, for senior citizens, most banks offer higher interest rates on fixed deposits, as compared to the general public. For senior citizens, banks typically offer a 0.50 per cent higher interest rate. For instance, on the 3-5 year fixed deposit, for deposits of below Rs 1 crore, SBI offers 7.10 per cent, whereas Ujjivan Small Finance Bank offers 7.50 per cent to senior citizens.
Senior citizens can also choose how they wish to receive their payouts. They can choose either interest pay-out at the time of maturity (cumulative) along with the principal amount or regular interest pay-outs (non-cumulative option) to meet daily expenses. The minimum amount that needs to be invested in an FD varies from bank to bank. However, there is no limit on the maximum amount that you can invest in an FD.
Some small finance banks also offer extra interest rate. However, it comes with a catch. To avail the extra interest, generally, you have to invest above Rs 15-20 lakh (varies from bank to bank) and that too without the option of premature withdrawals.