When we think about investing in our retirement, we face a multitude of questions. Which scheme is better? Which will give us better interest rates? Are we liable for any income tax benefits? Most of all, our goal is that our savings build on themselves, rather than just remain a lump sum amount. Today, we shall learn about one such revolutionary savings deposit scheme known as the Senior Citizens Savings Scheme, and its differences from regular fixed deposits.
During the pandemic, the Senior Citizen Savings Scheme (SCSS) was a big support for senior citizens as most of the banks were offering a low interest rate of around 6% to senior citizens on long-term fixed deposits (FDs). But since May 2022, banks have increased their interest rates on deposits because the Reserve Bank of India (RBI) increased the repo rate.
Repo Rate is the rate at which RBI lends money to commercial banks or financial institutions. The finance minister of India announced an extension of the maximum deposit limit for the Senior Citizens Saving Scheme while presenting the budget for 2023. The maximum deposition amount in the Senior Citizens’ Saving Scheme (SCSS) has been hiked from ₹ 15 lakh to ₹ 30 lakh. The minimum deposit for the scheme continues to be ₹ 1000.
So, with such high interest being charged by banks, should senior citizens, or individuals looking to begin their retirement period prefer to invest their savings in SCSS or a bank FD? In this article, we shall be exploring the differences between FD vs SCSS, and analyse which is better for your future investments and savings.
When comparing fixed deposit vs SCSS, SCSS provides an annual 8% interest rate, whereas FDs for senior citizens have higher than regular interest rates, with almost a 0.50% difference as compared to the rates offered to the general public.
But, SCSS has a higher limit of ₹30 lakhs, which isn’t a substantial retirement sum as compared to FDs which can be made for amounts as high as ₹2 crores.
SCSS allows investors to withdraw some amount of the capital investment in case of an emergency. As we know, all banks allow for premature withdrawal of your fixed deposits, however, you are charged a penalty for premature withdrawals.
Nevertheless, the depositor should know the FD withdrawal process after maturity or before maturity, to be fully informed about the process and penalties incurred in case of such an event.
In this comparison of bank FD vs SCSS, there is no point of difference. SCSS has a 5-year tenure, hence it allows for ₹1.5 lakhs of total tax deduction under Section 80C of the Indian Tax Act, 1961.
Furthermore, investors can get income tax deductions in FDs that have a tenure of 5 years or more, which are liable to similar tax slab deductions.
The SCSS interest amounts are paid back quarterly throughout the fiscal year, once every three months, whereas the interest amount of a bank FD is compiled quarterly or annually at the point of maturity, and repaid with the initial capital investment as a lump sum.
In this comparison of fixed deposit vs senior citizen savings schemes, FDs come out as the winner as the tenure of an FD can be anywhere between 7 days up to 10 years. On the other hand, SCSS has a fixed tenure of only 5 years, which can later be extended for up to 3 more years.
In this article, we have highlighted several points of difference between FDs and SCSS. Both have their positives and negatives. Eventually, it all depends on your liquidity and investment needs. So start investing smarter and pick the right scheme for you and your loved one’s necessities.