Invest in Fixed Deposit to earn fixed income after Retirement
Retirement marks a significant milestone in one's life, bringing with it the promise of leisure and relaxation. However, it also necessitates careful financial planning to ensure a steady income stream during the golden years. Planning for retirement requires strategic financial decisions and opting for Fixed Deposits is a tried-and-true method. In this regard, Fixed-Income Investments are a viable option for senior citizens, providing stability and security. Among the various investment options available, they stand out as the go-to choice for people seeking reliable returns. Let us explore more about some “Fixed” Deposit options and discover how they can be a cornerstone for your financial well-being in the post-retirement phase.
- Senior Citizen Savings Scheme (SCSS)
- Pradhan Mantri Vaya Vandana Yojana (PMVVY)
- Bank Fixed Deposits (FDs)
- RBI Floating Rate Savings Bonds 2020 (Taxable)
- Post Office Monthly Income Scheme (POMIS)
- Post Office Time Deposit Account (POTD)
The Senior Citizen Savings Scheme, a Government-backed initiative, is the preferred investment option for senior citizens and retirees. Individuals aged 60 and above, as well as those between 55 and 60 who invest within a month of receiving retirement benefits, can participate. With a minimum investment limit of Rs 1,000 and a maximum of Rs 30 lakh, the SCSS offers a five-year tenure, with an option to extend it in multiple blocks of 3 years each, on maturity.
For the third quarter (October–December) of FY 2023–24, the Senior Citizen Savings Scheme (SCSS) provides an interest rate of 8.2% per annum, payable quarterly and is fully taxable. While there is no interest on maturity, investors can claim a tax deduction under Section 80C of the Income Tax Act, 1961. Premature withdrawals are subject to penalties, making it essential for investors to consider the long-term commitment associated with this scheme.
Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a 10-year investment scheme tailored for senior citizens, administered by the Life Insurance Corporation of India (LIC) for the Government of India. This scheme offers a fixed income with an interest rate of 7.4% per annum (as of the current fiscal year). This scheme provides flexibility in choosing pension payouts: monthly, quarterly, half-yearly or yearly.
Investments in PMVVY range from a minimum of Rs 1.5 lakh to a maximum of Rs 15 lakh, determining the pension amount received. Additionally, senior citizens can avail of a loan of up to 75% of the invested amount after three years, with the interest recovered from the pension. Premature exit options are available under exceptional circumstances, but the pension received is fully taxable.
Bank Fixed Deposits are renowned for their fixed returns and lower risk, making them a staple for senior citizens. Most banks offer an additional FD interest rate of 0.50% to senior citizens and FDs can have varying interest payout intervals: monthly, quarterly, half-yearly or yearly.
Tax-saving FDs with a lock-in period of five years, enable investors to claim Income Tax deduction of up to Rs 1.5 lakh under Section 80C. However, the interest is taxable and banks deduct a TDS of 10% if the interest income across all FDs exceeds Rs 50,000 in a financial year for senior citizens.
The RBI Floating Rate Savings Bonds, popularly known as the RBI 8.05% Bonds, are another viable option for senior citizens. With a tenure of seven years and a floating interest rate linked to the National Savings Certificate (NSC), these bonds currently offer an interest rate of 8.05% per annum.
Senior citizens aged 60 and above can opt for a premature exit with a lock-in period of six years for ages 60–70, five years for ages 70–80 and four years for age 80 and above. You cannot take loans against these RBI bonds and the interest earned on these bonds is fully taxable.
The government-backed Post Office Monthly Income Scheme (POMIS) provides a fixed monthly income to investors. Open to all, it is particularly favoured by senior citizens seeking a monthly income stream. With a minimum investment of Rs 1,000 and a maximum of Rs 9 lakh (single account) or Rs 15 lakh (Joint Account), POMIS currently offers an interest rate of 7.40% per annum.
The interest is credited at the end of every month and remains constant throughout the five-year tenure. Premature withdrawal is possible after one year, subject to penalties. However, POMIS does not offer any income tax benefits and the interest received is fully taxable.
The Post Office Time Deposit Account (POTD) is a well-known small savings scheme offered by India Post (Department of Posts). With tenures of one, two, three or five years, senior citizens can open an account with a minimum of Rs 1,000. While interest is calculated quarterly, it is payable yearly.
For the July–September quarter of FY23, POTD offers interest rates ranging from 6.9% to 7.5% per annum, depending on the tenure. Senior citizens investing in a 5-year POTD can claim tax deduction under Section 80C of the Income Tax Act of 1961. Premature closure is subject to certain conditions and investors need to be aware of the associated terms.
Investing in Fixed Deposits is a prudent choice for senior citizens looking for a reliable source of fixed income post-retirement. The array of options available, including Government-backed schemes, Bank FDs and special-term deposits, provides flexibility based on individual preferences and financial goals. However, it's crucial for retirees to carefully consider factors such as interest rates, tax implications and withdrawal conditions before making investment decisions.
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