Senior Citizens FD: Four banks hike fixed deposit rates; should you invest in FD schemes or Senior Citizen Savings Scheme?

Senior Citizens FD rate hike: Four banks have hiked their fixed or term deposit interest rates for senior citizens and general customers this month. Following the Reserve Bank of India’s (RBI) monetary policy committee decision to keep the repo rate unchanged at 6.5 per cent, there has been a lot of buzz around bank fixed deposit rates.

Many experts feel that interest rates may go down in the near future due to increasing deposit growth in banks this year. Therefore, one should quickly invest in the best schemes at the best rates.

The rates of fixed deposit schemes were hiked significantly in 2022 after the central bank raised the repo rate by a total of 2.5 per cent in a bid to beat inflation. Since February 2023, the RBI has maintained its repo rate at 6.5 per cent.

Here are the banks which hiked the FD rates this month:

Axis Bank FD schemes

Private lender Axis Bank recently raised its fixed deposit rates for its senior customer, effective from August 14. It is now offering 3.5 per cent to 8.05 per cent interest to senior citizens on deposits maturing in 7 days to 10 years. These interest rates are valid on callable term deposits below Rs 2 crore.

The highest rate, 8.05 per cent, is being offered on deposits maturing in 16 months to less than 17 months.

Canara Bank FD schemes

Public lender Canara Bank is offering 4 per cent to 7.75 per cent rate of interest on FD schemes to senior citizens. The rates are effective from August 12.

Federal Bank FD schemes

To mark the 77th Independence Day, Federal Bank announced a hike in interest rates for deposits, which got effective from August 15, 2023.

In a statement, Federal Bank said the term deposit rate for a tenure of 13 months would fetch interest rates of 8.07 per cent for senior citizens. The enhanced rates would be available for a limited period only.

Suryoday Small Finance Bank FD schemes

Earlier this month, Suryoday Small Finance Bank hiked its fixed deposit rates for 5-year tenors by 85 basis points (0.85 per cent). The small finance bank is now allowing fixed deposits maturing in 7 days to 10 years at an interest rate of 4.50% to 9.10% to its senior customers.

Bank FDs vs Senior Citizen Savings Scheme

The Senior Citizens Savings Scheme is especially for investors above the age of 60 years. It offers a regular stream of income with the highest safety and tax-saving benefits.

An individual who has attained the age of 60 years or above on the date of opening of an account is eligible for the scheme. Besides, an individual who has attained the age of 55 years or more but less than 60 years and has retired under Superannuation, VRS or Special VRS, can also open an account.

The government had hiked the interest rate for the scheme for the April-June quarter from 8 per cent to 8.2 per cent. Once the investment is done the interest rate remains the same throughout the tenure.

Senior citizens can invest up to Rs 30 lakh in this scheme from April 1, which was hiked from Rs 15 lakh before. The hike was announced by Finance Minister Nirmala Sitharaman in her Budget 2023 presentation.

"The SCSS outperforms other FD schemes in terms of liquidity. Unlike an FD, the SCSS interest can be withdrawn on a regular basis. Furthermore, the interest rates are more appealing to senior citizens than the FDs. As a result, the SCSS scheme makes more sense," said Srinivasa Reddy, Assistant Professor, Marketing Management Area, T A Pai Management Institute, Manipal.

"SCSS currently offers higher interest rates for senior citizens than interest on FDs by most banks. Interest rate is paid quarterly on SCSS, whereas the bank pays FD interest on maturity," said Dr Sridevi, Professor in Finance and Accounting & Dean at IFIM School of Management.

But one should also note that when it comes to bank fixed deposit schemes, senior citizens have more options in terms of tenure in comparison to SCSS. FD schemes range from 7 days to 10 years, and investors can put their money as per their short-term or long-term goals. Senior citizens always get 50 basis points (bps) extra on these deposits.

"One must note that early withdrawal from SCSS, i.e., before completing two years, can lead to a penalty of 1.5 per cent of the deposited amount," Dr Sridevi.

"A ceiling of Rs 30 lakh is insufficient for today's pensioners. The limit can technically double if both spouses keep single accounts with cross-nominations. The interest rate is determined by the government, and revised quarterly,” said Reddy.

Also read: FD Calculator: Check out the latest fixed deposit rates here and calculate returns online

Also read: Senior Citizen Fixed Deposit high interest rates may not be for long, says report

Also read: PPF vs FD: Check out the latest interest rates of Public Provident Fund and Post Office Fixed Deposit here