Interest rates compare favourably with those of private banks, but the SCSS scheme offers better returns
Nikhil Walavalkar and Hiral Thanawala
On Thursday, the State Bank of India (SBI) introduced a new fixed deposit (FD) scheme for senior citizens. Called the ‘SBI Wecare Deposit,’ it offers higher interest rates for the elderly. Does the rate hike make it attractive?
Score on safety
Given that the largest public sector bank, SBI has rolled out the FD, depositors are completely assured of its safety. Of course, the Senior Citizen Saving Scheme (SCSS) too is safe and offers higher interest rates.
You can invest a maximum Rs 15 lakh in the SCSS and can take tax deduction under section 80C for Rs 1.5 lakh. However, there is no maximum limit on investments in the SBI WeCare deposit scheme. But, you don’t get income tax benefits by investing in SBI’s deposits.
Interest rates comparable with those of private banks
‘SBI WeCare Deposit’ offers senior citizens 80 basis points more interest for investments made for five or more years (6.5 per cent), compared to rates offered to those less than 60. Bank of Baroda and IDBI Bank offer 6.2 per cent and 6.3 per cent interest, respectively on fixed deposits of five years or more made by senior citizens. “The interest rates of the new fixed deposit scheme for senior citizens from SBI are now competitive and comparable with those offered by private banks,” says Sapna Tiwari, Co-founder and COO, Rupeewiz Investment Advisors. For instance, HDFC Bank and ICICI Bank offer 6.5 per cent interest rate to the category of depositors mentioned above.
SCSS offers 7.4 per cent interest for a tenure of five years.
A senior citizen can invest in SBI WeCare deposit scheme for five years or more. Premature withdrawal means that depositors have to forgo 30 basis points interest.
The premature penalty is much higher in the case of SCSS. If you withdraw after one-year, then an amount equal to 1.5 per cent of the deposit will be deducted and if you withdraw after two years one per cent of the deposit will be charged by the SCSS scheme.
Should you invest in SBI WeCare deposit?
When compared with the interest rates offered by banks across the spectrum, senior citizens get a reasonably favourable deal with SBI Wecare Deposits. Though rates on the SCSS are higher, there is an investment cap. So, investors can consider parking some incremental amounts in these deposits. RBI’s 7.75 per cent taxable bonds (available to all citizens) can also be considered.
“If the investor is comfortable with holding on to the investment till maturity, then he/she should prefer RBI Savings bonds first, followed by SCSS and then SBI Wecare deposits,” says Joydeep Sen, founder of wiseinvestor.in.