As interest rates on fixed deposits fell following the money policy operations initiated by the RBI, senior citizens have suffered the direct brunt of the rate cut since they largely earn through interest.
The discontinuance of the 400-day special FD (which used to pay 7.3%) by banks such as the Bank of India and HDFC Bank, lowering their savings account interest rate, means that retirees have fewer avenues for earnings.
Why Are FD Rates Falling?
The Monetary Policy Committee (MPC) of the Reserve Bank of India, with a 25 basis points (bps) cut in repo rate, has indicated that interest rates will sustain their downward trend. This has, of course, affected bank FDs, which are now far less attractive for investors looking for assured returns.
Since senior citizens depend more on fixed-income instruments, they must now look for schemes offering better yields to sustain their cash flow.
Best Investment Alternatives for Senior Citizens
1. Senior Citizen Savings Scheme (SCSS) – 8.2% Interest
One of the safest and most rewarding options, the SCSS offers an 8.2% annual interest rate with quarterly payouts. It has a 5-year tenure (extendable by 3 more years) and comes with tax benefits under Section 80C.
2. Post Office Monthly Income Scheme (POMIS) – 7.4% Interest
For those needing a monthly income, POMIS provides 7.4% annual interest, paid every month. The 5-year lock-in period ensures steady returns, making it ideal for retirees.
3. National Savings Certificate (NSC) – 7.7% Interest
The NSC is a low-risk, government-backed scheme with 7.7% interest compounded annually. It matures in 5 years and qualifies for tax deductions under Section 80C.
4. Corporate FDs (AAA-Rated) – Higher Returns Than Bank FDs
Preeti Zende, SEBI-registered investment advisor, suggests considering AAA-rated corporate FDs from reputed companies. These often offer better interest rates than bank FDs and may include monthly payout options.
5. Long-Term FDs – Lock in Higher Rates Now
Vishal Dhawan, a financial planner, advises opting for long-term FDs since interest rates may drop further. Locking in current rates ensures better returns over time.
6. Equity Market Exposure – Balanced Risk Approach
While equities carry risk, allocating 10-20% of savings to hybrid mutual funds, large-cap funds, or index funds can enhance returns. Avoid direct stock investments unless comfortable with volatility.