Latest news with #SeniorCitizen
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Business Standard
4 days ago
- Business
- Business Standard
Bad news for FDs: Rates to fall sharply as RBI cuts repo rate by 50 bps
The Reserve Bank of India (RBI) cut its repo rate by 50 basis points to 5.5 per cent on Friday, June 6, in its third monetary policy review for the 2025–26 financial year. This is the third straight cut by the Monetary Policy Committee (MPC) this year. The move is expected to ease borrowing costs, but fixed deposit (FD) investors may not be pleased. Banks have already begun lowering interest rates on deposits, continuing a trend that started after the central bank's earlier rate reductions. "For depositors, a 50 bps repo rate cut may not slash FD rates overnight, but it does signal the beginning of a downward trend. Banks are likely to start trimming deposit rates, especially for short- and medium-term tenures," said Adhil Shetty, CEO of Several of the country's largest lenders have trimmed their fixed deposit interest rates since the RBI began easing policy in early 2025. < In February and April 2025, the RBI cut the repo rate by 25 basis points each. < According to a report by SBI Research, FD rates have been reduced by 30 to 70 basis points since February 2025. < Interest rates on savings accounts have also been brought down to a floor rate of 2.70 per cent, the report said. Some banks had introduced limited-period schemes to attract deposits, but those are now being withdrawn or adjusted. 'Now they are discontinuing them or lowering the rates on them,' said Santosh Agarwal, CEO of Paisabazaar. What investors can do now With fixed income returns shrinking, investors are looking at alternative strategies to protect returns. "If you've been waiting to lock in current rates, some of which still hover around 7.5%, now may be the time. Senior citizens, who enjoy an extra 25 to 50 basis points, should consider locking in longer tenures," suggested Shetty. He also recommended diversifying. 'Senior citizens should use FDs for stable income, but must also allocate a portion of their portfolio into equities for inflation-adjusted returns,' he said. Look beyond traditional options Aman Gupta, director of RPS Group, said investors should be more hands-on in reviewing options. 'Start with banks and NBFCs that offer the best rates—small finance banks tend to pay 0.5–1 per cent higher than the more orthodox banks,' he said. He also advised reviewing tax impact. 'Post FD returns after the tax slab are not inflation-indexed; tax saving FDs or Senior Citizen Savings Scheme (SCSS) outperform inflation post taxation and therefore are better alternatives,' said Gupta. For investors seeking a mix of safety and returns, Gupta pointed to hybrid investment options. 'Channel a portion of the savings towards instruments such as arbitrage or conservative hybrid funds which offer better stability than equities but tend to be volatile relative to bonds,' he said. 'Maintain an emergency fund with six to twelve months of expenses while exploring alternatives,' he added. "Fixed deposit rates to come down sharply as banks transmit this rate cut. Investors should look at 2 to 3-year corporate bonds for their portfolio as they continue to offer good spreads over government and FD rates, and interest rates will come down more gradually for corporate bonds,' Vishal Goenka, co-founder of said. Try staggered investments Siddharth Maurya, founder and managing director of Vibhavangal Anukulakara Private Limited, advised spreading fixed deposit investments across various tenures. 'Try out debt mutual funds, corporate bonds, or RBI floating rate savings bonds as they may yield superior returns after tax,' he said. 'Employ FD laddering—divide your portfolio into several FDs with staggered maturities, for example, 1, 2 and 3 years.' He also urged depositors to keep an eye on maturity timelines. 'If you have shorter-term deposits, make sure to renew them reliably to bypass auto-renewal at devalued rates,' said Maurya. Key investor tips Lock in current FD rates: Consider fixing rates now for medium to long-term tenures. Use laddering: Spread FDs across different maturities to manage reinvestment risk. Explore small savings schemes: SCSS and POMIS may offer higher, safer returns. Consider AAA-rated corporate FDs and debt mutual funds: These may provide better yields but come with some risk.
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Business Standard
25-04-2025
- Business
- Business Standard
Explained: Can you break your SCSS deposit early, and what would it cost?
The Senior Citizen Savings Scheme (SCSS) has become one of the go-to investment options for senior citizens in India, offering a stable and secure way to grow their savings. With its high interest rates, government backing, and quarterly payouts, it's no wonder that SCSS is favored by retirees looking for predictable returns. However, life is unpredictable, and sometimes, unforeseen financial needs arise that require you to access your funds earlier than planned. So, what happens if you need to break your SCSS deposit early? Is it possible, and what are the consequences? What is the SCSS scheme? The Senior Citizen Savings Scheme (SCSS) is a government-backed savings scheme designed to provide a regular income stream for senior citizens. It offers a fixed interest rate and allows for both individual and joint accounts, primarily benefiting those 60 years and older. The scheme is a safe investment option, backed by the Indian government, and offers tax benefits. The Senior Citizen Savings Scheme was introduced in 2004 as a part of post office savings scheme, to provide financial security to senior citizens who are in need of a steady income post retirement. Residents aged more than 60 years, can individually or jointly open SCSS account. It can either be opened in a post office branch or an authorized bank. It offers an interest rate of 8.2% for the current quarter. This scheme supports a maximum deposit of Rs.30 lakhs, with a tenure of 5 years which can be further extended to 3 years. Deductions under section 80C of Income Tax Act is allowed for this scheme. However, interest on deposits are fully taxable. The current interest rate applicable to SCSS is 8.2% p.a. This interest rate is applicable for first quarter of financial year 2025-26. At 8.2% p.a. interest rate and an investment amount of Rs.30 lakh, the monthly income is stated to be Rs.20,500 per month for each investor. The maturity period of SCSS is 5 years. However, individuals can extend the maturity period for 3 more years by submitting an application. The application for an extension of maturity should be within one year from the date of maturity. Withdrawals from Senior Citizens Savings Scheme accounts will be exempt from tax starting August 29, 2024. Senior citizens are predominantly benefitted from this amendment. TDS (Tax Deducted at Source) is applicable on the interest earned if it exceeds ₹50,000 in a financial year (for senior citizens). Investments up to Rs 1.5 lakh in SCSS qualify for tax deductions under Section 80C of the Income Tax Act. Premature withdrawal before maturity: Yes, but with a cost SCSS has a default lock-in period of five years. However, the government does allow early closure—with penalties based on how long you've been invested. Value Research breaks this down: If withdrawn before 1 year: No interest is payable. Any interest already credited will be recovered from your principal. If withdrawn after 1 year but before 2 years: A penalty of 1.5 per cent of the deposit amount is deducted. If withdrawn after 2 years but before 5 years: A penalty of 1 per cent of the deposit amount is deducted ClearTax does a further deep dive: Within 1 Year of Deposit: If you wish to withdraw the SCSS deposit before the first year, the interest earned will be penalized. A penalty of 1.5% will be charged on the deposit amount, which means you will lose some interest earned on the deposit. After 1 Year but Before 2 Years: If the deposit is withdrawn after one year but before two years, the penalty reduces to 1%. After 2 Years: If you withdraw the deposit after two years but before the completion of the full five-year tenure, the penalty continues to be 1% of the deposit amount. It's important to note that if you break your SCSS account before maturity, you won't get the full interest rate and could face some loss of earnings. Conditions: One exception to the premature withdrawal penalty is in the unfortunate event of the account holder's death. If the account holder passes away, the SCSS deposit can be withdrawn without incurring any penalty on the interest. In this case, the nominee or legal heir will be entitled to the principal and the interest earned, without the penalty charges that would normally apply to premature withdrawals. Tax Implications of Premature Withdrawal When you break your SCSS deposit early, the tax treatment on the interest earned remains the same. Interest earned on SCSS is subject to taxation, and the amount is taxed according to your income tax bracket. However, the early withdrawal may affect how much you ultimately pay in taxes due to the reduced interest earnings after the penalty is applied. Additionally, Tax Deducted at Source (TDS) will be applicable if the interest earned exceeds ₹50,000 in a financial year (for senior citizens). The TDS will be deducted regardless of whether the deposit is withdrawn prematurely or not. What about maturity? You now have more flexibility "Previously, SCSS allowed only a one-time extension of three years. But rules have changed. Now, you can extend your SCSS deposit indefinitely in blocks of three years each. This is great news for retirees who don't want to reinvest elsewhere and prefer to continue earning a fixed return in a secure scheme. The extension must be requested within one year of maturity. The interest rate applicable will be the one prevailing at the time of extension," explained Value Research in a note. Can You Withdraw During the Extension Period of SCSS? Yes, you can withdraw from your SCSS account during the extension period. After the initial 5-year term, the SCSS account can be extended for an additional 3 years. The best part? Once you have completed one year of this extended block, there is no penalty for premature withdrawal. This offers senior citizens more flexibility, as they can still access their funds without being penalized. Why is This Advantageous? This is a key benefit of the SCSS extension feature. If your circumstances change or if an unexpected financial need arises, you don't have to be permanently locked into the scheme. The ability to withdraw funds after a year during the extension period means that, while you continue to earn interest, you are not stuck if you need liquidity. This flexibility makes SCSS a relatively adaptable investment for seniors who may need to adjust their financial plans over time. How to Exit the SCSS Scheme (During or After Extension Period) To exit the scheme, whether during the original five-year term or during an extended period, you need to follow a simple process: Visit the Bank or Post Office: Go to the bank or post office where you hold your SCSS account. Submit Form 2: Fill out and submit Form 2, which is the form used for premature closure of your SCSS account. Provide Necessary Documentation: You may also need to submit some documents, such as your account details, proof of identity, and any other documents required by the institution. Once your request is processed, you will receive the principal amount and the interest earned, minus any penalties if applicable (which is not the case during the extension period after one year). This flexibility provides senior citizens with peace of mind, knowing that their funds are not entirely locked in if they need them earlier than planned.
