Retirement means the end of your service period. We all want to enjoy a peaceful retirement, but a happy retirement depends on efficient financial planning. For retirees, making the best use of the retirement corpus which is keeping tax liability at bay as well as enjoying regular income is of prime importance. Surely, no one wants to outlive their retirement corpus.
Making wise investment decisions is very important for retirees and a big challenge. The retirement corpus must be invested in such a manner that it not only earns interest, but also offers regular income that could reduce the gap between pension and salary.
Given below is a comparative study between fixed deposits and senior citizens savings schemes that will help you understand which investment option to opt for:
The Senior citizens savings scheme (SCSS) is a popular investment scheme that is specially designed for senior citizens. The SCSS is a savings scheme where the investor deposits money and earns regular interest income. It is a risk-free and tax saving investment option. The scheme comes with a maturity period of 5 years and is a long term saving option which offers protection of capital along with quarterly interest income. The scheme is backed by the Government, and offers attractive interest rate of 8.7% a year. Investing in SCSS is a good way to reduce the gap between pension and salary.
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SEE ALSO: What is senior citizens saving scheme
The SCSS scheme is especially designed keeping in mind the requirements of senior citizens. You must keep the following points in mind before applying for SCSS:
Bank fixed deposits are one of the most opted for investments among senior citizens. It is a scheme offered by the banks, where you deposit money and earn a high rate of interest. The fixed deposit comes with varied maturity periods ranging from 7 days to 10 years. So the investor has the flexibility to choose the lock-in period in case of fixed deposits.
Once the money is invested, it earns interest till maturity. The money cannot be withdrawn before maturity. Premature withdrawal has a penalty on interest. The 5 year tax saver fixed deposits are eligible for tax benefits under Section 80C of the income tax act, up to Rs 1.5 Lakhs a year.
SEE ALSO: What is a fixed deposit?
After retirement, people do not opt for riskier investment options. Rather, they look for safe and risk free investment avenues, that would not only protect the principal, but also generate more money by way of interest income. So, both bank fixed deposits as well as SCSS schemes are good investment options for retirees.
However, there are certain benefits that senior citizens enjoy by investing in SCSS over FDs. The SCSS scheme is specifically designed for senior citizens keeping in mind their requirements. But bank FDs can be availed by almost everyone. Investing in SCSS is beneficial as interest is paid each quarter.
You will have a monthly income as interest is paid each quarter. An FD accumulates interest earned and you receive the entire sum along with the interest at the time of maturity. Listed below are some of the points that would help in better understanding both the schemes:
An investment made under SCSS scheme is liable for income tax deduction under Section 80C of the income tax act, up to Rs 1.5 Lakh a year. There are no tax benefits for premature withdrawal. No tax will be deducted in case of premature withdrawal by the nominee of the legal heir, in the event of death of the depositor.
TDS is not deducted by banks on FD interest income up to Rs 50,000 a year for senior citizens. However, interest income is taxed, if you are above the minimum tax exemption limit. Money invested in these deposits can be withdrawn on maturity. In case of premature withdrawal, the deposits are liable to a penalty.
Investing in SCSS will keep your deposit intact, in case of premature withdrawal.
Currently the rate of interest available on the senior citizen saving scheme is 8.7% a year as of January 2019 for an investment of 5 years, whereas fixed deposit offers interest rate ranging from 4.25% to 8% a year. The rate of interest on deposits varies across banks and also depends on the tenure.
For FDs with tenure less than a year, the interest rate is lower, whereas for FDs with tenure more than 5 years, it is generally above 6.5% a year. As retirees will want to generate more income on their investment, saving in SCSS makes sense. The rate of interest on SCSS is reviewed quarterly and is subject to periodic changes. So, in this respect, SCSS is a better investment option for retirees vis-a-vis FDs as it helps earn better returns.
Depositors are allowed to make a lump sum deposit with a minimum deposit of Rs 1,000. Deposits greater than Rs 1,000 have to be in multiples of Rs 1000. In a senior citizen saving scheme, you can invest up to Rs. 15 Lakhs. The scheme is specifically designed to support you after retirement. So, the scheme can be easily availed at the nearest post office or bank. You can hold more than one SCSS account and can also appoint a nominee or can hold joint accounts with spouse as the second applicant. As the interest income is compounded each quarter, the SCSS helps receive regular income to cover monthly expenses.
The SCSS account can be opened at any post office located within India.
To open an SCSS account at the post office, you have to collect the senior citizen application form from the nearby post office. Submit the duly filled form along with supporting KYC documents. The process is simple. Once the account is opened, the interest income gets automatically transferred to the investor’s saving account at the same post office.
Withdrawals: Premature withdrawal is allowed on SCSS account, but only after 1 year of opening the account. If the closure of the account takes place after one year but before the end of 2 years, 1.5% of the deposit is deducted in the form of pre-mature withdrawal charges.
On closure of the account after 2 years, an amount equal to 1% of the deposit shall be deducted as charges. In the event of the death of the depositor, no charges or penalty is levied for premature closure of the account.
As SCSS schemes offer more benefits to senior citizens, it’s advisable for retirees to invest in senior citizen saving schemes, rather than fixed deposits. They also come with certain terms and conditions that are specially suited to senior citizens.
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