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A fixed deposit is stable and risk-free no matter whether the market is fluctuating or if the economy is experiencing a flux due to inflation or any other reason. Pradhan Mantri Vaya Vandana Yojana by PM Narendra Modi has helped senior citizens to avail a steady 8% interest rate on investment for the next 10 years. How does senior citizen scheme compare with Pradhan Mantri Vaya Vandana Yojana and other options for Senior Citizens?

Compare Fixed Deposit and Pradhan Mantri Vaya Vandana Yojana

In Pradhan Mantri Vaya Vandana Yojana Plan premium amount is a one-time payment and gets locked up for 10 years. You cannot withdraw the amount to meet any unforeseen expenditure (under exceptional circumstances).  A maximum amount of pension you can get is Rs 5000 monthly. Regardless of the fluctuating market and negatively affected fixed deposit market, there are fixed deposits with interest rate on Senior Citizen FD as 8% per month.

There are other options such as investment in Post Office Senior Citizens Savings Scheme (POSCSS) which offers 8.5%. In POSCSS, you have to invest in 5 years’ time whereas in the fixed deposit you are not obliged to do so.

PMVVY Fixed Deposit Senior Citizen Saving Scheme POTD NSC Mutual Funds Pensions Plans
Minimum Investment 1,44,578 Rs 1000 Rs 1,000 Rs 200 Rs 100 Rs 500 Rs 200
Maximum Investment 7,50,000 No upper limit Rs 15 lakh No upper limit No upper limit No upper limit No upper limit
Investment tenure 10 years 7 days-10 years Up to 8 years 1-5 years 5-10 years Can be both short and long-term Can be both short and long term
Lock-in period 10 years Same as tenure 5 years Same as tenure Same as tenure 3 years 3 years
Rate of interest 8% 6%-8% around 8.5% 7-8% around 8% Market-linked 3%-7%(depends on the issuer)
Penalty on premature withdrawal 2% Interest rate applicable will be 1% less than the original rate. 1%-1.5% Interest paid will be according to the postal saving scheme and not as per the plan. No premature withdrawal allowed No premature withdrawal allowed No premature withdrawal allowed
Tax status No tax benefit EET EET EET EET EET EET

How does fixed deposit investment help a senior citizen?

Suppose, if an investment of INR 7.5 lakhs is made. If 8% interest rate is added to the amount, then it would generate an income of INR 5000 per month. Thus, it will help the senior citizens to earn INR 60,000 per year. This initiative is worth the applause as the majority of the senior citizens can now withstand the inflation and sustain their life for a decade.

The interest rate on the fixed deposit is not expected to increase anytime soon. The fixed deposit product goes hand in hand with the home loan rates. A favourable home loan interest has had an adverse effect on the fixed deposit interest rates. Even Employee Provident Fund saw a reduction in the rate of interest.

What are the most beneficial points in Senior Citizen Fixed Deposit.

Fixed interest: With the rate of interest expected to fall even further in the next 2-3 years. A constant interest set at 8% for the senior citizens will help them to steer clear of the declining fixed deposit market.

Sizeable income: As mentioned above in an example. If a senior citizen invests an amount of INR 7.5 lakhs, the amount will accrue an interest of INR 60,000 per year which will indeed be helpful for the senior citizens.

These are few of the highlights of the Senior Citizen Fixed Deposit scheme.  As for taxability, the income tax limit for senior citizens above 80 years of age is INR 5 lakhs whereas for investors between the age of 60-80 years is INR 3 lakhs.

Thus, we can conclude by saying that now is the best time to invest in a fixed deposit for senior citizens. The conditions have been made favourable by the bank, and the financial institutions such as Non-Banking Financial Companies are doing their all to reach out to such investors. Don’t wait for better schemes to arrive as most probably it will not. The current scenario is the most favourable one.

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