The Senior Citizen Savings Scheme (SCSS) emerged as one of the most preferred investment options for senior citizens during covid as most of the banks offered a low-interest rate of around 6 per cent on long-term fixed deposits (FDs).
But now the situation has changed with the Reserve Bank of India (RBI) raising the repo rate since May 2022. Since then most banks have raised interest rates on deposits.
Repo Rate is the rate at which RBI lends money to commercial banks or financial institutions. Therefore, it becomes pertinent to know if senior citizens should park savings in SCSS or bank FD when the interest rates have gone up. To be able to decide on this, one must compare the interest rates, tenure and tax benefits among other things.
Senior Citizens Saving Scheme (SCSS) vs bank FD: Check interest rates
The Senior Citizens Savings Scheme is especially for investors above the age of 60 years. In the last rate revision, the government increased the interest rates for the Senior Citizen Savings Scheme (SCSS) for the January-March quarter of FY2022-23. For those who are investing in the January-March quarter, the SCSS offers an interest rate of 8 per cent per annum.
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Talking about FDs, top banks such as HDFC Bank, State Bank of India, Punjab National Bank, and Kotak Mahindra Bank have revised interest rates, especially for senior citizens.
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Senior citizens get an additional rate of interest that can go up to 0.50 per cent more than for the general public. IDFC First Bank offers an interest rate from 4.00 per cent to 8.00 per cent on deposits up to five years maturity, DCB Bank offers 4.25 per cent to 8.35 per cent, Yes Bank is offering 3.75 per cent to 7.75 per cent to elderly people. IndusInd Bank returns range between 4 per cent and 8.25 per cent.
Senior Citizens Saving Scheme (SCSS) vs bank FD: Tenure
In terms of liquidity, bank FDs score over SCSS as deposits are available for a period ranging from 7 days to 10 years. Given a short-term goal, one can opt for FDs. However, Senior Citizens Saving Scheme matures in five years though one may seek an extension by another three years that takes the total investment tenure to eight years.
Now, coming to withdrawal, under Senior Citizens Saving Scheme you can withdraw some amount in the event of an emergency. On the other hand, banks allow premature withdrawal of your deposits, however, you will be charged a penalty for such premature withdrawals.
Under SCSS the interest is payable on quarterly basis which comes on 31st March, 30th June, 30th September and 31st December of every financial year. In an FD, there is no fixed interest payable over a quarter, half-year, or annually in a cumulative FD scheme. In such a scheme, the interest rate is compounded every quarter or year and payable at the time of maturity with the principal.
Income tax benefits
The Senior Citizens Saving Scheme has five years tenure and you get an income tax deduction of up to Rs1.5 lakh under Section 80C of the Indian Tax Act, 1961.
Investors can avail income tax deductions for bank FDs with five years or more tenure as well.