Few Alternatives to Fixed Deposit (FD) for Higher Returns for Seniors Few Alternatives to Fixed Deposit (FD) for Higher Returns for Seniors | Photo credit: Getty
Fixed deposit interest rates are at an all-time low as part of the Reserve Bank of India’s (RBI) effort to encourage consumers to spend in order to boost the pandemic-stricken economy. Typically, risk-averse investors seek refuge in the security of government-backed FDs. But the returns on such diets are currently tiny.
Currently, the State Bank of India (SBI) three-year FD for seniors offers an interest rate of 5.80% and a 1-year FD only pays 5%, which is barely enough for beat inflation. Retail price inflation in July was reported at 5.6% after remaining above 6% for two consecutive months.
Analysts believe the RBI could start raising interest rates in early 2022 to keep inflation under control. Any rise in interest rates will also be beneficial to depositors whose returns on savings will increase. However, there is no fixed date on the same and the central bank has maintained its accommodative stance. Investors who rely solely on interest income may consider other safe options to park their funds and get a better rate on their investments.
Alternatives for seniors
Seniors Savings Plan (SCSS) is one such program that is specifically aimed at seniors and aims to provide a higher assured return on their savings. As this is a government backed program, investors need not worry about their investment. The interest rate on this scheme is decided by the government each quarter, for the quarter in July-September of fiscal year 22, the interest rate on SCSS is set at 7.4%. Contributions to the plan are eligible for a deduction under section 80C of the Income Tax Act. However, you can only invest Rs 15 lakh under the program.
Pradhan Mantri Vay Vandana Yojana (PMVVY) is a retirement and retirement plan operated and managed by the Life Insurance Corporation (LIC) launched by the government in 2017. The plan provides a guaranteed return of 7.4% on the amount of the investment. The only eligibility criteria for the program is that the investor must be a person aged 60 or over and an Indian citizen. The minimum investment amount is 1.5 lakh, which provides a monthly pension of Rs 1,000.
While PMVVY and the SCSS plan currently offer an interest rate of 7.4%, in PMVVY your returns are locked in for the entire 10-year term after you buy it. In SCSS the investment period is five years, but in PMVVY the investment period is 10 years, providing a guaranteed return for a longer duration. However, when it comes to liquidity, SCSS has better liquidity than PMVVY.
Post monthly income plan is a government-supported monthly income scheme (MIS) under the umbrella of the Indian Post which provides a regular monthly pension. Investors can put in a lump sum of up to Rs 4.5 lakh individually or Rs 9 lakh jointly. It offers an interest of 6.6% per annum, payable monthly. However, there is a 5 year lock-up period and investors can withdraw funds at maturity.