The Reserve Bank of India (RBI) has recently reduced the repo rate by 0.25%, the first time in five years, which is expected to impact fixed deposit interest rates. This is significant for senior citizens who rely on bank deposits to finance their post-retirement lives. As a result, banks are likely to lower their fixed deposit interest rates. However, they will also aim to increase their deposit ratios, creating a dilemma.
Despite this, many banks are currently offering fixed deposit plans with higher interest rates than the Senior Citizen Savings Scheme (SCSS), which offers 8.2% interest to senior citizens. Several small finance banks are offering FDs with interest rates above 8.2%, with tenures ranging from 12 months to 5 years.
The table provided lists 14 small finance banks offering FDs with interest rates above 8.2% and their respective tenures. These banks include Ujjivan Small Finance Bank, DCB Bank, Suryoday Small Finance Bank, and others. Some of these banks offer higher interest rates than the SCSS scheme, making them attractive options for seniors.
The SCSS, however, has several advantages over bank fixed deposits. It allows tax deduction benefit under Section 80C, subject to a limit of ₹1.5 lakh in a financial year. In contrast, only 5-year FDs are eligible for tax deduction. SCSS is also considered a safer savings option, with a sovereign guarantee, whereas FDs come with a deposit insurance guarantee of only ₹5 lakh.
In conclusion, while the recent repo rate cut may lead to lower FD interest rates, seniors can consider alternative options like small finance bank FDs that offer higher interest rates. The SCSS, however, remains a more attractive option due to its tax benefits and sovereign guarantee. Investors are advised to review their options carefully and consider their individual financial goals and risk tolerance before making a decision.