Safe harbours for seniors

If you are nearing sixty and looking for some safe investment avenues, there are many options you could consider.

The Senior Citizens Savings Scheme (SCSS) offered by post offices and many banks gives an interest rate of 9.2 per cent per annum, with quarterly interest payouts. It is open to those who are 60 years and above (55 years for those who have retired on superannuation or under a voluntary scheme).

You can invest a maximum of ₹15-lakh over a five-year (extendable by three years) period.

Another five-year investment option that you can consider is the Post Office Monthly Income Scheme (POMIS). It offers 8.4 per cent interest per annum, with monthly interest payouts. You can deposit a maximum of ₹4.5-lakh in a single account and ₹9-lakh in a joint account.

Apart from this, you can go for fixed deposits (FDs). With many banks offering interest rates of at least 9.5 per cent per annum to senior citizens on fixed deposits currently, this is an option worth looking at.

For instance, ICICI Bank offers 9.5 per cent on deposits with a tenure of 390 days to five years. Bank of Baroda customers can earn 9.6 per cent on 1-10 year deposits and those investing in Karur Vysya Bank can get 9.75 per cent interest on deposits with 1-year to five-year maturity.

Bank deposits, too, have the option of regular monthly or quarterly interest payouts.

As a rule, interest earned under all the schemes will be treated as part of your income and taxed at the applicable tax rate.

So which of the three gives you the best deal? It all depends on what you’re looking for.

If you have taxable income and want relief on the tax front, apart from returns, the SCSS is the scheme to go for. Investments of up to ₹1-lakh qualify for the benefit under Section 80C of the Income Tax Act.

Assuming a tax slab of 10 per cent and also taking into account Section 80C tax benefits, the scheme will yield 9.5 per cent (a year) post-tax for someone investing ₹1 lakh. This is higher than the returns from a bank FD (assuming an interest rate of 9.5 per cent and quarterly compounding) and the POMIS, both of which do not qualify for tax benefits on money invested.

But if you are done with your tax-saving investments or don’t have taxable income, a bank fixed deposit is the clear choice as the interest will be higher in the current scenario. In case you don’t have taxable income for the year, you must submit Form 15H to your bank to ensure that it does not deduct tax on the interest earned on the FD. This is also the form to be submitted (to the bank/post office) to avoid tax deduction on interest earned under SCSS and POMIS in case you decide to invest in them as well.

An FD has other advantages too. Unlike the fixed tenures of the other two schemes, you can choose a fixed deposit with tenures ranging from seven days to up to 10 years.

There is also no ceiling on the maximum amount that can be invested here. Thirdly, FDs also score over the other investment options when it comes to premature withdrawal of money as the penalty is lower. Many banks charge a penalty of 0.5-1 per cent of the amount deposited in case of foreclosure.

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