Why Fixed Deposits Are Attractive For Senior Citizens?

Fixed deposits are one of the most popular financial instruments opted for by senior citizens. Read this article to find out the many reasons why they make an attractive investment option.

Time deposits, also known as fixed deposit, are one of the most popular investment options among Indian investors. Unlike market-linked investment instruments that offer exponentially higher returns, investors still feel a certain strong urge to invest in traditional investment instrument i.e. fixed deposit scheme offered by banks and financial institutions. Individuals, HUFs, companies and even senior citizen are seen to be more inclined to invest in this traditional product. Most of the banks and financial institutions offer a higher rate of interest to their senior citizen customers.

Let us understand why investing in fixed deposit is an attractive proposition for senior citizens:
Unlike all market-linked investment tools, fixed deposit is still at the top of its game as its investors are till today certain that this investment tool will offer fairly good returns on the investments. Following are the reasons that make fixed deposits an attractive investment option, especially for senior citizens.

Ease of Transactions

One of the main reasons for the popularity of fixed deposit among senior citizens is the ease of transaction. They do not want the hassle of transaction on a frequent basis and similarly they prefer less documentation. Keeping in mind the above parameters, banks and other financial institutions have made the whole process of opening and investing in a fixed deposit account simple, quick and hassle-free.

Fixed Returns

Fixed deposit investments offer fixed returns. Unlike market-linked products, where the amount of return is not known, fixed deposit account holders can be certain about the amount of returns they will be earning on their investments.

Flexibility in Pay-outs

Fixed deposit earns interest at a pre-determined rate. The investor can avail interest earned on fixed deposit as per their choice. Fixed deposit instrument offers flexibility to the investor to opt the interest pay-out method. Interest pay-outs of fixed deposit can be received on monthly, quarterly, half-yearly, yearly or on the date of maturity. An investor can choose the payment frequency as per his or her financial needs. Similarly, the investor has the flexibility to choose the manner in which the individual would want the interest pay-out i.e. by ECS or Cheque. Thus, investors can claim interest as per their convenience and according to their financial plans.

Higher Interest Rate

The biggest advantage offered by banks and financial institutions is a higher rate of interest for investments done by senior citizens. Most of the financial institutions in India offer a minimum of 25 to 50 basis points higher rate of interest in fixed deposit for senior citizen investors.

Tax Benefit

Earlier, TDS or Tax Deducted at Source was charged by banks and financial institutions on interest received from fixed deposits if the amount was more than Rs. 10,000 in a year. However, due to recent changes in the Income Tax Act, senior citizens are not charged with TDS if the interest earned from the fixed deposit is not more than Rs. 50,000 in a year. But if the interest earned on fixed deposit is more than Rs. 50,000 per year then the bank or financial institution will charge 10% TDS on the entire interest and 20% in case the investor has not provided PAN details. Thus, investing in a fixed deposit has become a very good investment option for senior citizens.

Fixed deposit for a senior citizen can be availed only by senior citizens as they offer a slightly higher rate of interest. For investing in the senior citizen fixed deposit investor is required to submit their proof of age in order to avail the benefits offered to these fixed deposit instruments. Following is the general overview of the eligibility criteria for availing the senior citizen fixed deposit instrument and few best features offered by the instrument.

• Age of the investor must be more than 60 years
• Age proof must be submitted in order to invest in senior citizen fixed deposit scheme
• Investors are given the flexibility to choose the tenure. Most of the banks and financial institutions offer tenure ranging between 7 days to 10 years
• Senior citizen investing in bank deposits earn a higher rate of interest as compared to other individuals. Most of the banks offer a higher rate of interest ranging between 0.25% to 0.50% as compared to the regular interest rate offered on regular deposits.
• Loan and overdraft facility is offered by the bank on senior citizen fixed deposit scheme
• In case of premature withdrawal of funds i.e. before the maturity date is done from senior citizen FD then it will attract penalties similar to other regular deposits.

In case any investor is inclined to invest in senior citizen fixed deposit scheme then he or she will be asked to submit the following documents:

1. A copy of age proof showing that the investor's age is more than 60 years (for example PAN Card, Birth Certificate, Aadhaar Card, Copy of Passport etc.)
2. Duly filled fixed deposit form
3. Passport sized recent coloured photographs
4. Certified copy of investors address proof (for example Aadhaar Card, Copy of Passport, recent electricity bill, recent telephone bill etc.)
5. Certified copy of signature proof (for example PAN Card, Passport or driving license)

1. The most important tip while choosing the most appropriate fixed deposit scheme is to carefully carry out extensive market research with regards to the terms and conditions of the fixed deposit instrument, such as rate of interest, fees, penalties related to premature withdrawal of funds, details about loan or overdraft facility, interest pay-out frequency, tenure etc. These factors are very important and it is best to carefully research various senior citizen fixed deposit instruments available in the market and choose the one that suits investors financial aspirations.
2. Take into consideration the expected trends in the rate of interest i.e. if the rate of interest is expected to rise in the near future then investing for shorter time duration is a good investment decision. Similarly, if the market trends suggest a drop in the interest rates then it is best to invest for longer duration and at a higher interest rate.
3. Interest on senior citizen fixed deposit can be received in a cumulative or non-cumulative manner. So, it is recommended that investors analyse their financial needs and select the best manner for receiving interest pay-outs.
4. Lastly, before investing surplus money in senior citizen fixed deposit scheme, it is important to analyse and plan your future financial requirements. If an investor is foreseeing an expense in the near future then splitting the investment in the short term and long-term investment is a good investment decision.

Thus, it is to be noted by every investor that even though fixed deposit is a safe and secure investment tool, it is best to carry an extensive and careful analysis of all the available senior citizen fixed deposit instruments in the market and then invest your money.

Recommended Read: How Does A Fixed Deposit Work?