Bank FD vs SCSS: The Senior Citizen Savings Scheme (SCSS) was a big support for senior citizens during the covid pandemic when most of the banks were offering a low interest rate around 6% to senior citizens on long term fixed deposits (FDs).However, things have changed since May 2022 as banks have been hiking their interest rates on deposits as the Reserve Bank of India (RBI) has been increasing the repo rate. Repo Rate is the rate at which RBI lends money to commercial banks or financial institutions. Amid the high interest rate offered by the banks, should senior citizens prefer to park their savings in SCSS or bank FD?
The government has recently increased the interest rates for the Senior Citizen Savings Scheme (SCSS) for the January-March quarter of FY2022-23. For investments made in the January-March quarter, the Senior Citizen Savings Scheme offers an interest rate of 8 per cent per annum.
If we talk about bank FDs, senior citizens get an additional rate of interest that can go up to 0.50% more than for the general public. IDFC First Bank offers an interest rate from 4.00% to 8.00% on deposits up to five years maturity, DCB Bank offers 4.25% to 8.35%, Yes Bank gives 3.75% to 7.75% to elderly people. IndusInd Bank will give 4.00% to 8.25%
If we talk about liquidity, then bank FDs score over SCSS as they offer deposits ranging from 7 days to 10 years. Depending upon ones short-term goal, people can opt for it. But, Senior Citizens Saving Scheme matures in five years though one may seek an extension by another three years, thus, taking the total investment tenure to eight years,
Senior Citizens Saving Scheme allows investors to withdraw some amount in the event of an emergency. All banks allow for premature withdrawal of your deposits, however, you will be charged a penalty for such premature withdrawals.
The SCSS interest is payable on quarterly basis this means on 31st March, 30th June, 30th September and 31st December of every financial year. There is no fixed interest payable over a quarter, half-year or annually in a cumulative fd scheme in that the interest rate is compounded every quarter or year and payable at the time of maturity with the principal.
The tenure of Senior Citizens Saving Scheme is five years, so you will get an income tax deduction of up to ₹1.5 lakh under Section 80C of the Indian Tax Act, 1961.
Investors can get income tax deductions for bank FDs with five years or more tenure
The SCSS interest rate is reviewed quarterly and is subject to periodic change. As compared to other savings schemes available in the market, the senior citizen savings scheme offers the highest rate of interest.
The rate of interest of FDs are revised by the banks, and it is not reviewed quarterly.
The interest from SCSS is taxed at income tax (I-T) slab rates, as is the case with FDs.
The Finance Minister Nirmala had announced to extend the maximum deposit limit for the Senior Citizens Saving Scheme while presenting Budget 2023. The maximum deposit level of the Senior Citizens' Saving Scheme (SCSS) has been enhanced from Rs15 lakh to Rs30 lakh. The minimum deposit for the scheme continues to be pegged at ₹1,000.
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