With banks reducing their fixed deposit rates, senior citizens should consider high-yielding investment options such as RBI Floating Rate Savings Bonds and Senior Citizens’ Savings Scheme. They can consider fixed deposits with some private sector banks and small finance banks (SFB) that offer yields of 8% and above.
Depositors seeking maximum possible capital protection for their fixed income investments can spread their fixed deposits across multiple banks offering high yields (See graphic). They should look at a longer tenure to earn higher interest income as interest rates fall.
Here are three secure and moderately high-yielding investment options for senior citizens.
Senior Citizen Savings Scheme (SCSS)
They can lock into the Senior Citizen Savings Scheme (SCSS), which offers 8.2%, paid quarterly. An individual of 60 years or more can open the account. Also, those above 55 years but below 60 years who have retired on superannuation or under VRS can open an account. The lock-in period is for five years and can be extended only once for three years, and the maximum amount of investment is Rs 30 lakh. If the account is closed before one year, no interest will be payable. If closed after one year but before two years from the date of opening, 1.5 % will be deducted from the principal amount. If closed after two years but before five years, 1 % will be deducted from the principal amount.
Santosh Agarwal, CEO, Paisabazaar, says SCSS depositors are covered under sovereign guarantee, the highest form of income certainty and capital protection.
RBI Floating Rate Savings Bonds
Senior citizens can consider investing in RBI Floating Rate Savings Bonds, which carry sovereign backing and offer a yield of 8.05%. These bonds have a tenure of seven years, and the interest payout frequency is half-yearly. There is no upper limit on investment in these bonds. Investors can purchase these bonds by opening a Bond Ledger Account via the RBI Retail Direct Portal.
Senior citizens can opt for premature redemption based on their age at the time of redemption. For those between 60–70 years, premature withdrawal can be done after six years. Those aged 70–80 years, after five years and those above 80 years, can go for premature redemption after four years. A penalty of 50% of the interest from the last six months will be deducted. Abhijit Roy, CEO, GoldenPi, an online platform to invest in bonds, says that being government-backed, these bonds carry no default risk, making them ideal for risk-averse investors and senior investors.
Deposits with small finance banks
SFBs are offering higher interest rates above 8% on fixed deposits compared to large commercial banks. Most SFBs require you to open a savings account to invest in FDs, especially if investing directly through the bank. These banks are regulated by the RBI and covered under the Rs 5 lakh Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance limit. However, it is better to avoid placing large sums in one such bank and keep the total exposure within the insured limit.
Adhil Shetty, CEO of Bankbazaar.com, says SFBs often offer better fixed deposit rates, making them a viable option. “These deposits are a good fixed income option provided the deposit remains within the Rs 5 lakh limit insured by the DICGC,” he says.