Senior Citizen Fixed Deposit (FD) interest rates have gone up to 9%. Recently, Unity Small Finance Bank raised the FD rates for senior citizens to 9% on a deposit of 181 and 501 days respectively. Other SFBs like Ujjival Small Finance Bank, Utkarsh Small Finance Bank, Jana Small Finance Bank, Fincare Small Finance Bank and ESAF Small Finance Bank are also offering up to 8.5% interest on FD to senior citizens.
Small Finance Banks (SFBs) generally offer higher interest rates than leading banks like SBI, HDFC Bank, PNB, Bank of Baroda, ICICI Bank etc. While the higher FD rates offered by SFBs make it a good time for senior citizens to invest in term deposit schemes, it is important to know that the safety of investment is not fully guaranteed.
As per RBI’s Deposit Insurance and Credit Guarantee Corporation (DICGC) rules, deposits up to only Rs 5 lakh are insured. This limit is inclusive of both principal and interest amounts. What this means is that even if a scheduled bank goes bankrupt or shuts down, the depositors will get up to Rs 5 lakh back.
“Each depositor in a bank is insured upto a maximum of ₹ 5,00,000 (Rupees Five Lakhs) for both principal and interest amount held by him in the same right and same capacity as on the date of liquidation/cancellation of bank’s licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force,” RBI says on its official website.
There is also a time limit for the refund. Banks are now required to give the money back to depositors within 90 days even if it is sinking.
What should investors do?
While Fixed Deposit schemes are generally considered safe, depositors should also look at the credential of the bank before investing. If there are doubts over the longevity of the bank, it is better not to get lured by high interest rates. Also, one should invest only that much amount in a bank FD for which the sum of principal and interest is not above Rs 5 lakh. If you want to invest more in an FD scheme then it is better to have multiple FDs in several banks while keeping the Rs 5 lakh insurance limit in mind.
Additionally, for better peace of mind, senior citizens should explore deposit schemes like National Savings Certificate and Senior Citizen Savings Scheme (SCSS), which come with a sovereign guarantee.