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Post Office senior citizen savings schemes Vs Bank FDs: Latest interest rates; Which option is smarter?

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Updated: October 23, 2018 12:27:44 PM

The recent hike in interest rates in Post Office Senior Citizen Savings Scheme (SCSS) and bank FDs have made the instruments more lucrative.

rate hike, interest rates, Post Office Senior Citizen Savings Scheme, SCSS, Post Office schemes, bank FDs, FD rates, senior citizen schemes, tax benefits, 80C deductions, tax deductions, maturity benefits, investment options for senior citizens, tax-free interest, RBI, RBI policy ratesFD rates for senior citizens vary from bank to bank and from tenure to tenure.

For senior citizens, time deposits in Post Office and banks have become more attractive after the government in the 2018 Union Budget proposed to increase the tax-free limits of the interest of such FDs to Rs 50,000 per year from Rs 10,000. Apart from tax benefits, the recent hike in interest rates in Post Office Senior Citizen Savings Scheme (SCSS) and bank FDs have made the instruments more lucrative. Let’s analyse the two investment options of the senior citizens.

Interest rates: The government has hiked the interest rates on Post Office SCSS after banks hiked the FD rates following increase in policy rates by the RBI. The interest rate on 5-year SCSS now stands at 8.7 per cent, which is highest for such deposits for senior citizens. On the other hand, the FD rates for senior citizens vary from bank to bank and from tenure to tenure, as mentioned in the following table.

Senior Citizen Fixed Deposit Rates 2018

FDs with Bank

Less than 1 year

1 to 5 years

More than 5 years

SBI

6.25% to 6.90%

6.90% to 7.25%

7.25%

HDFC Bank

4.00% to 6.75%

6.25% to 7.00%

6.00%

Canara Bank

4.70% to 6.85%

6.50% to 7.00%

6.50%

ICICI Bank

4.50% to 7.00%

7.00% to 7.25%

7.00%

HSBC Bank

3.50% to 5.50%

5.50% to 6.50%

IDFC

4.50% to 7.50%

7.75% to 8.00%

7.70%

Repco Bank

5.75% to 7.25%

7.50% to 7.75%

7.50%

Tamilnad Mercantile Bank

5.00% to 6.75%

6.75% to 7.50%

7.40%

DCB Bank

4.50% to 7.50%

7.50% to 7.75%

7.70%

Lakshmi Vilas Bank

4.50% to 7.25%

7.90% to 7.95%

7.90%

Yes Bank

5.50% to 7.33%

7.71%

7.71%

Deutsche Bank

4.00% to 6.50%

6.90% to 7.25%

7.50%

Karur Vysya Bank

5.00% to 6.75%

6.75% to 7.00%

7.00%

Punjab National Bank

6.20% to 6.85%

6.75% to 7.25%

6.75%

Bandhan Bank

4.25% to 7.55%

8.00% to 8.15%

7.15%

IDBI

5.75% to 6.50%

7.00% to 7.25%

6.50%

IndusInd Bank

4.75% to 6.90%

6.65% to 7.00%

6.65%

*Rates are subject to change and can be revised by the bank without prior notice

Tax benefits: The SCSS and bank FDs having tenure of more than 5 years enjoy tax deductions u/s 80C up to Rs 1,50,000 per year. FDs of lesser tenure don’t give such benefits. However, the interest earned is taxable for all the schemes. TDS will be deducted on interest once it exceeds the tax-free limit, which has now increased to Rs 50,000 per financial year.

Flexibility: Post office offers only one tenure of 5 years for SCSS, while there are wide choices available for bank FDs. However, tax deductions u/s 80C are available only on time deposits of 5 years or more. To get the tax benefits, a senior citizen needs to invest in 5-year bank FDs, which can’t be withdrawn prematurely. Although the tenure of SCSS is also 5 years, but premature withdrawal is allowed. If the amount is withdrawn prematurely, lower interest rate will be given. For premature withdrawal after one year, an amount equal to 1.5 per cent of the deposit will be deducted and on such withdrawal after 2 years, 1 per cent of the deposit will be deducted. So, senior citizen investors should also keep the flexibility factor in mind before investing.

Investment limits: While there are no investment limits for bank FDs, a senior citizen can invest minimum Rs 10,000 and maximum Rs 1,50,000 in SCSS. So, to invest more than Rs 1,50,000, one has to shift to FDs.

Safety of investment: As Post Office schemes bear Sovereign guarantee of the Government of India, the SCSS is safer than bank FDs. So, SCSS is safer and more profitable option for senior citizens who is going to invest up to Rs 1,50,000 for a fixed term of 5 years. For, investments above Rs 1,50,000 and for investments of shorter periods, a senior citizen has to compare the bank FD rates and reputation of banks before investing in FDs.

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