The risk appetite of investors changes with their age. As you approach your retirement, you have to ensure that the corpus you have built up serves you for the rest of your life. You do not want to take any undue risk, and capital protection becomes paramount. In such a scenario, fixed deposits are great as capital protection is essential. Further, the ease of operation adds to a sense of independence that they draw from managing their investments themselves.
Here are the key reasons why fixed deposits are an ideal investment tool for senior citizens:
Fixed deposits earn a guaranteed return over their tenure. Unlike products whose returns depend on the market conditions, the returns on a fixed deposit are fixed at the time you make a deposit. This makes them an ideal choice for the risk-averse investor like a senior citizen. Further, the FD interest rates for senior citizens is typically 0.5% higher than the rates offered to other investors.
Ease of operation
The process of investing in and withdrawing from a fixed deposit is simple. The documentation requirements are minimal as well. The hassle-free process makes it attractive for senior citizens as they do not have to depend on anyone else to complete these processes.
The interest rate that a fixed deposit earns is fixed. The investor can decide on how she would like the interest earned paid out. You could choose the interest to be paid out to your bank account every month, every quarter, half-yearly or annually based on your requirements. It allows fixed deposits to act as a source of regular income. If you do not need a regular income from fixed deposits, you can choose to have the interest cumulated annually. This way, you would earn a higher return on your investment.
Higher interest rate
As stated earlier, banks and other financial institutes offer higher interest rates for fixed deposits made by senior citizens. The FD interest rates for senior citizens can be 25 to 50 basis points higher compared to the interest rates on fixed deposits of the same tenure offered to other investors.
While banks and financial institutes are required to deduct income tax at source on the interest earned on fixed deposits, the threshold offered to senior citizens is substantially higher. TDS is charged if the interest income from fixed deposits is at least ₹10,000 a year. The threshold for senior citizens has now been increased to ₹50,0000 a year. TDS deducted if the interest earned is higher than ₹50,000 is at 10%. If PAN details are not provided, this increases to 20%.
Ask the lender not to deduct TDS if your total income for the year is not expected to be taxable by submitting a copy of Form 15G.
In the end, it should be noted that you can also take out a loan against your fixed deposits. Most banks would also offer an overdraft facility to customers with sufficient fixed deposits with them. It can provide liquidity in case of any urgent need for cash.