Falling Interest Rates: What are the Options for Senior Citizens?

The falling interest rate regime has got individuals, especially senior citizens, worried. For a senior citizen, bank fixed deposits have long been the most preferred investment option. However, the falling interest rate scenario has called senior citizens to look beyond fixed deposits to earn a good return on their investment. Currently, public sector banks offer interest in 4% to 6% on fixed deposits.

Individuals relying entirely on the interest income had to redraw their budget and financial plan as their income has been reduced. Amid the falling interest rates, where should you put your money? Should senior citizens invest in equities and assume risk to earn higher returns? How should they go about investing now? Well, the answer is here.

For a senior citizen, capital protection is of utmost importance. At the same time, their investment should fetch them enough returns to cover their expenses if interest is their only source of income. Considering these parameters, the following investment options may be suitable for senior citizens:

i) Senior Citizen Saving Scheme (SCSS)

Senior Citizen Saving Scheme (SCSS) is exclusively for individuals aged above 60 years. If you retired on a superannuation or voluntary retirement scheme (VRS), you could also open an SCSS account. Currently, SCSS is offering an interest of 7.4% and comes with a lock-in of five years. The scheme pays out interest every quarter, and the returns earned are fully taxable in the hands of investors. The Government of India offers the scheme, and hence, investing in this scheme is safe. An SCSS account allows investment of up to Rs 15 lakh. You can open a joint account with your spouse, a senior citizen or retired on superannuation or VRS. 

ii) Pradhan Mantri Vaya Vandana Yojana

Pradhan Mantri Vaya Vandana Yojana (PMVVY) was launched by the Ministry of Women and Child Development in 2017. It was initially open until May 2020, and the government has extended the entry of individuals until the 31st of March 2023. This extension has come as a saviour for senior citizens as the entry age is 60 years. You can invest a maximum of Rs 15,00,000 in these accounts. The scheme comes with a tenure of ten years and is currently offering returns at the rate of 7.4%. The interest is payable every month. PMVVY is an excellent alternative to SCSS. If you have exhausted the limit of your SCSS, you may consider investing in PMVVY. Most individuals prefer SCSS over PMVVY, as the former comes with a shorter tenure. 

iii) Post Office Monthly Income Scheme (POMIS)

Post Office Monthly Income Scheme (POMIS) is an excellent fixed-income investment. It is offered by India Post, and you can open an account online or by walking in at any branch spread across India. The scheme currently offers interest at the rate of 6.6% and comes with a tenure of five years. The rate of interest will remain the same until maturity once you invest. You can invest up to Rs 4.5 lakh in an account. Joint accounts are permitted; up to Rs 9 lakh can be invested in these accounts. 

iv) Floating Rate Savings Bonds

Floating Rate Savings (FRS) bonds come with a tenure of seven years, and the rate of interest varies over the tenure of the bonds. The interest is paid out on a bi-annual basis. The interest rate is reset every January and July, and it is linked with the interest rate of NSC. Generally, the interest rate offered by FRS bonds is higher than NSC by 35 basis points. 

For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in

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