As of May 21, 2025, senior citizens in India can earn interest rates of up to 9.1% on fixed deposits (FDs) for a five-year tenure, with a capital of up to Rs 3 crore. Several small finance banks are offering attractive interest rates, including Suryoday Small Finance Bank (up to 9.1%), Unity Small Finance Bank (up to 8.65%), and NorthEast Small Finance Bank (up to 8.5%). However, financial experts advise caution when investing in small finance banks, as they may carry higher risks compared to commercial banks.
All deposits are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to Rs 5 lakh, but the business models of small finance banks differ from scheduled commercial banks, potentially exposing depositors to higher risks. Despite this, small finance banks can provide higher interest rates, making them an attractive option for senior citizens looking to maximize their returns.
It’s also important for senior citizens to be aware of Tax Deducted at Source (TDS) on their FDs. If the total interest earned in a financial year exceeds Rs 1 lakh, banks are required to deduct TDS. However, TDS is not an additional tax and can be refunded or adjusted when filing the Income Tax Return (ITR). To avoid unnecessary TDS deductions, eligible senior citizens can submit Form 15H to their banks, declaring that their total income is below the taxable limit.
For example, under the new tax regime for FY 2025-26, a senior citizen earning Rs 11 lakh annually may not have to pay any income tax due to the Section 87A tax rebate applicable for incomes up to Rs 12 lakh. However, banks will still deduct TDS if the interest income crosses the Rs 1 lakh threshold. By submitting Form 15H, senior citizens can avoid TDS deductions and ensure that their interest income is not unnecessarily taxed. Overall, senior citizens can earn attractive interest rates on FDs, but it’s essential to be aware of the potential risks and tax implications.