For senior citizens, fixed deposit (FD) is one of the most common instruments to invest their money. Senior citizens prefer to invest a large amount of their money in FDs because the principal investment amount is considered safer as compared to investments in equity and the former also offers assured return in the form of interest.
Given below are some features of fixed deposits for senior citizens:
Opening a FD account
Usually, senior citizens open an FD account with the bank with which they already have their savings account. Some banks insist that an individual opens a savings account with them before accepting FDs from the individual. However, others may accept FDs from a person even if no savings account is opened. If you do not already have a savings account with the bank, it will ask you to complete your Know-Your-Customer (KYC) process.
You will be required to provide self-attested copy of ID proof such as PAN, address proof such as Voter ID, passport etc. and latest coloured photographs along with the duly filled KYC form. Don’t forget to take your original IDs as the bank official will ask for them for verification purposes.
To be eligible for investing in FDs as a senior citizen, bank officials will verify your age from the documents provided by you. Usually, bank follows the definition of senior citizen as mentioned in the Income Tax Act.
Minimum and maximum investment amount
The minimum amount required to be invested in an FD varies from one bank to another. However, there is no limit on the maximum amount that you can invest in an FD.
Interest rate
Senior citizens are usually offered higher interest rates as compared to the general public. Typically, banks offer 0.50 per cent higher interest rate. Senior citizens can choose whether they wish to receive regular interest pay outs (non-cumulative option) to meet their expenses or at the time of maturity (cumulative) along with the principal amount.
Top 5 senior citizens bank FD rates
Tenure: 1 year
| Bank Name | Interest rate (%) compounded qtrly | What Rs 10,000 will grow to |
| Indusind Bank | 8.50 | 10877 |
| RBL Bank | 8.50 | 10877 |
| Lakshmi Vilas Bank | 8.35 | 10862 |
| Bandhan Bank | 8.10 | 10835 |
| J&K Bank | 8.05 | 10,830 |
Tenure: 2 years
| Bank Name | Interest rate (%) compounded qtrly | What Rs 10,000 will grow to |
| AU Small Finance Bank | 8.75 | 11890 |
| RBL Bank | 8.55 | 11844 |
| Lakshmi Vilas Bank | 8.45 | 11820 |
| IDFC Bank | 8.25 | 11774 |
| Bandhan Bank | 8.25 | 11774 |
Tenure: 3 years
| Bank Name | Interest rate (%) compounded qtrly | What Rs 10,000 will grow to |
| AU Small Finance Bank | 9.00 | 13061 |
| DCB Bank | 8.55 | 12889 |
| Lakshmi Vilas Bank | 8.45 | 12851 |
| Bandhan Bank | 8.25 | 12776 |
| South Indian Bank | 8.10 | 12720 |
Tenure: 5 years
| Bank Name | Interest rate (%) compounded qtrly | What Rs 10,000 will grow to |
| AU Small Finance Bank | 8.50 | 15228 |
| Lakshmi Vilas Bank | 8.45 | 15191 |
| DCB Bank | 8.25 | 15043 |
| Bandhan Bank | 8.25 | 15043 |
| RBL Bank | 8.10 | 14932 |
All data sourced from Economic Times Intelligence Group (ETIG)
Data as on 14 March, 2019
Banks typically offer FDs which pay interest monthly, quarterly, half-yearly or on annual basis.
Tenure
Banks have defined a minimum and maximum period for which FD account can be opened with them. Usually, one can invest in an FD for a minimum 7 days and maximum of 10 years. You can choose the tenure within this range according to your needs.
Taxation
According to newly inserted section 80TTB in the Income Tax Act, interest amount received up to Rs 50,000 on deposits held with banks, co-operative banks or post offices are effectively tax-exempted. This tax exemption works as follows: A senior citizen can claim deduction of up to Rs 50,000 interest income earned from these entities as deduction from gross total income before levy of tax.
Additionally, no TDS will be deducted from the interest payments made up to Rs 50,000 in one financial year. To avoid deduction of TDS, a senior citizen can submit Form-15H to the bank.
Premature withdrawals
FDs normally offer the facility of premature withdrawal which can help you meet urgent requirements. However, a penalty can be levied by the bank on premature withdrawal of FD. The amount of penalty that will be deducted from your FD amount varies across banks.
Nowadays, some banks do not charge penalty on premature withdrawals. Further, some banks offer FDs without premature withdrawal facility too. Therefore, it is advisable to check the rules regarding the same.
Loan facility
You can use FD as collateral to obtain a loan. The maximum loan sanctioned is usually a certain percentage of the principal deposit. This percentage can vary across banks.
Nomination facility
Nomination facility for FDs is also available. While placing an FD, it is important that you mention the nominee in a clear and precise manner so that your legal heirs do not have to go through difficulties to claim the money. A separate form has to be filled while giving nomination, known as Form DA1.
Automatic renewals
Banks, nowadays, offer the facility of automatic renewals at the time of maturity. This means that if no instructions are mentioned at the time of opening of account, then the FD will be automatically renewed on the maturity date. Auto renewal of FD is for the same period for which it was initially placed at the interest rate prevailing on date of auto-renewal.
You may be required to visit bank branch on the maturity date if you wish to receive maturity proceeds in your savings account in case you have not given instructions for this on the FD opening form.
Disclaimer: The data/information given above is subject to change therefore before taking any decision based on it, contact the bank/institution concerned.