Is it a good time for senior citizens to lock in money in bank’s special FDs?

SBI is offering an interest of 6.20% to senior citizens on a 5-10 year FD. (Photo: Mint)

NEW DELHI: The State Bank of India (SBI) has extended the special fixed deposit scheme for senior citizens till 30 June. The scheme was set to lapse on 31 March.

‘Wecare’ was launched in May last year to provide an alternative to senior citizens amid declining interests, offering a 30 basis points (one basis point is one hundredth of a percentage) higher than the normal fixed deposit rate offered for a tenure of 5 or 10 years.

SBI is offering an interest of 6.20% to senior citizens on a 5-10 year FD. But interest rates have bottomed out, and it needs to be seen if it makes sense lock-in money for years now?

“When the interest rates are at the bottom and likely to be going up, it sounds like a bad idea to lock in money for a long tenure like 5 years. I would not advise my customers to do so,” said Pratibha Girish, certified financial planner and co-founder of Finwise Personal Finance Solutions, a mutual fund distribution firm.

“My go-to schemes for senior citizens is Senior citizens savings scheme and life insurance corporation’s Vaya Vandana Yojana. If both are exhausted in today’s context, I am recommending floating rate bonds where they can get benefit of increasing rate,” she added.

Senior Citizens Savings scheme has a maturity of 5 years. It is currently offering an interest rate of 7.4% which is higher than the interest rate on bank FD.

However, one can invest a maximum of 15 lakh in a senior citizen savings scheme while there is no such limit in case of bank fixed deposits. In both the cases, there are penalties on premature withdrawal.

The interest earned is fully taxable. However, in case of SSSC one can claim a deduction of Rs1.5 lakh under Section 80C.

(Do you have a personal finance query? Send in your queries at [email protected] and get them answered by industry experts.)

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