Retirement means an end to the regular monthly earnings for an individual. In order to manage your finances, post your retirement, a retiree must make proper arrangements. Investing in proper investment schemes can substitute your income to help you financially after your retirement.

Out of the many investment schemes available for senior citizens, investing in a senior citizen fixed deposit is the best option. With its high-interest rates and reliable returns, fixed deposits remain on the top of all the investment options available for senior citizens.  You can choose a monthly or quarterly cycle of interest payment to suit your needs.

However, if you are considering investing in FDs, then you might have the following questions:

  • Do FD investments equivalent returns as the other investment alternatives in the market?
  • Is the interest income on FD liable for tax?
  • Will the FD amount help in financial crisis during an emergency?

Read this article to get answers to the questions mentioned above or any other questions that you might have regarding FD investment.

High Interest-Rates for Senior Citizen Fixed Deposits

The interest rate provided on senior citizen fixed deposits is higher than other normal FDs. While all the established banks in India provide senior citizen FD facility at a maximum interest rate of 7.25%, investing in an FD with NBFCs gives you higher returns.

NBFCs provide 8.75% FD interest rate to senior citizens. Along with an exceptionally high interest-rate you enjoy safe and fixed returns. As the FD interest rates are not affected by market fluctuations, there is no question on not getting expected returns at the end of the FD tenor. To estimate the maturity amount of your FD investment, you can use the FD Calculator that is available on websites of banks or NBFCs. 

Tax Benefits for Senior Citizens

After an entire working life spent on paying income taxes, one might worry about the taxes that could be applied to the post-retirement income. However, if Senior Citizens invest in Tax Saver Fixed Deposits of 5 years, then they can claim deduction up to 150000 u/s 80C of Income Tax Act, 1961. However, the interest that you earn on a normal FDs is liable for Tax Deduction at Source (TDS). Therefore, the FD maturity amount that one receives is the amount left after reducing the taxes. In contrast to the normal FD, the senior citizen FD returns are not liable for TDS if the interest income is lesser than 50000 p.a. u/s 80TTB of Income Tax Act, 1961.

Loan against FDs for Emergencies

In times of urgent cash requirement, people usually prefer a premature withdrawal of their FD amount. By doing so, you disrupt your whole financial plan. Moreover, premature withdrawal of FDs cost you in the following ways:

  • You are required to pay some penalty on your FD amount.
  • You may or may not get the interests that you might have earned on the FD.

Therefore, premature withdrawal of your FD should be avoided even in times of emergencies. If an emergency arises and you need to avail urgent cash you can take a loan against your FD holdings. You can avail loan up to 75% of the FD amount, depending on the financial institution. With a simple application, you can get your required cash within 24 hours.  Furthermore, you can repay the loan through flexible repayment options offered by your FD facility provider.

Published by Kate Westall