As a senior citizen, when it comes to saving your hard-earned money, four investment options are likely to cross your mind. The first is senior citizen’s savings scheme, and PPF and NSC followed by life insurance policies. The third is the capital markets, including share trading and mutual funds. The fourth and probably the most popular is the fixed deposit.
This article discusses the seven reasons why a senior citizen should consider opening an FD account and shows you how a fixed deposit is the best investment option for a senior citizen.
1. Secured Income
Fixed deposits offer secure income. Unlike the capital markets, fixed deposits offer a fixed rate of interest, which remains the same during the tenure of the loan.
2. High-Interest Rates
Senior citizens get higher interest rates than others. For senior citizens, FD interest rate are generally 0.25% to 0.50% higher than the prevailing interest rates.
3. Cumulative or Non-Cumulative Interest Income
Fixed deposits offer senior citizens the freedom to choose between lump sum payment on maturity or periodic payments. The FD interest rates are higher in the case of cumulative FDs and lower for the non-cumulative ones. For example, an investment of up to Rs. 1 crore, in a cumulative fixed deposit, for 60 months and above, will fetch an effective interest rate of 9.23%. The same amount will have an interest rate of 7.65% if you prefer to receive monthly payouts.
4. Flexible Tenure
PPF has a lock-in period of 15 years. NSC and senior citizen’s savings scheme has a lock-in period of 5 years. Most life insurance policies have lock-in periods between 10 years and 21 years.
Compare this with fixed deposits, and you get the facility to invest for as little as seven days to as high as ten years. Since senior citizens might require the funds anytime, investing in a fixed deposit makes the investment flexible.
Unlike life insurance policies and sovereign savings schemes, fixed deposits are liquid. You may close the FD account anytime you wish to, against a small penalty. You may also apply for a loan against your fixed deposit certificate. Liquidity is the primary reason for the popularity of fixed deposits.
6. Tax Benefits
According to Section 80TTB of the Income Tax Act, a senior citizen may get a tax exemption of up to Rs. 50,000 on interest income. Hence, no TDS is deducted for interest income of up to Rs. 50000. The only thing you have to remember is to submit Form 15H to the financial institution at the beginning of the fiscal year.
7. Automatic Renewals
One of the most significant advantages of fixed deposits is that it gets automatically renewed unless you specify otherwise. Hence, you continue to earn interest income even after your initial fixed deposit matures. The automatic renewal facility saves you from the trouble of visiting the financial institution time and again.
An FD account is a sign of assurance. Investing in a compoundable fixed provides assured income. Generally, NBFCs give much higher returns than traditional banks. Before investing in an NBFC, check whether the institution is CRISIL FAAA rated or not.
Author Bio –
Salman Ahmad is an Engineer by choice, Blogger, YouTuber, and an Entrepreneur by passion. He loves technology in his day to day life and loves writing Tech Articles on Latest Technology, Cyber Security, Internet Security, SEO and Digital Marketing and Business related current topics. Read his blog at TechloverSAhmad