Senior Citizen Savings Scheme vs Fixed Deposits: Which gives better interest rates over five-year investment period?

Among the safest investment tools in India, bank deposits and the government's Senior Citizen Savings Scheme (SCSS) are the preferred choice for retired investors seeking steady payouts and guaranteed returns.

Why choose bank fixed deposits?

FDs are great financial tools for saving toward specific goals and can be automated so that deductions from your bank account ensure a neat, fixed amount is set aside each month. At the end of tenure, ranging from 7 days to up to 10 years, you can choose to have the principal and interest deposited into your account or renewed as another FD, if the rates are appealing to you.

For senior citizens (60 years and older) in particular, almost all banks offer slightly higher interest rates across tenors when compared to regular investors. Retirees and pensioners can also opt for tax-saver FDs to save on taxes. Here, investing in a five-year FD with principal up to ₹1.5 lakhs and interest up to ₹50,000 can be claimed as a deduction under section 80TTB.

Why choose Senior Citizen Savings Scheme?

Meanwhile, SCSS is a government-backed retirement plan for citizens 60 and older to invest between ₹1,000 to ₹30 lakh for a period of five years, at annual interest rate of 8.2%. Investment under the scheme also qualify for tax deduction up to ₹1.5 lakh under Section 80C of the Income-Tax Act. The accounts can be opened at your nearest post office.

The maturity period for the SCSS scheme is five years. It can be extended for another 3 years. Once the investment is done the interest rate remains the same throughout the tenure. It provides a good and steady pad up to your pension stream with quarterly interest payouts and is an attractive investment option for seniors as active earnings from employment tapers. 

Bank FD rates for five years vs SCSS interest rate

How to build an emergency fund?

A “rainy day” fund or emergency fund is crucial aspect when planning your fiscal goals alongside the asset allocations, investments and retirement fund. Simply put, it is money set aside for sudden and unexpected situations.

“Most people aim to keep 3 to 6 months of essential expenses set aside,” according to Clear Tax. It further noted that if you are a freelancer, have medical conditions or dependents, or are someone with unstable income flow, this fund should increase to cover 6-12 months of expenses.

For example, if your monthly spend is ₹25,000 for six months that works out to ₹1.5 lakh as emergency fund. This can be built in stages, starting from ₹500-1,000 each month, or even a little more or less depending on your ability. However, the key is to consistent and habitual. It is advisable to take stock of your expenses every few months to keep a track of how much you are spending and if the fund total meets calculations.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.