Winning Bizness Desk
Mumbai Following last week's 0.25% reduction in the repo rate by the Reserve Bank of India (RBI), banks are anticipated to lower both lending and deposit interest rates. Currently, due to prolonged high rates, deposits are yielding up to 9% interest. If you wish to secure these prevailing rates, this may be your last chance. While the repo rate cut is favorable news for borrowers, as it reduces their installment burdens, it poses a downside for fixed deposit (FD) investors. Banks are expected to commence decreasing interest rates soon. Therefore, senior citizens with surplus funds should consider investing in FDs now to lock in the existing higher rates.
Current High-Yield FD Options for Senior Citizens:
Unity Small Finance Bank: Offers an annual interest rate of 9.5% for a tenure of 1,001 days.
Suryoday Small Finance Bank: Provides 9.1% interest for a 5-year term.
Utkarsh Small Finance Bank: Grants 9.1% per annum for durations between two to three years.
In the private banking sector, FD interest rates range from 7.5% to 8.75% annually. For instance:
Bandhan Bank: Offers 8.55% interest for a one-year term.
DCB Bank: Provides 8.55% interest for tenures of 19-20 months.
Among public sector banks, interest rates reach up to 7.55%. Notably:
Punjab & Sind Bank and Bank of Maharashtra: Both offer a maximum of 7.95% interest.
Upcoming Tax Benefits for Senior Citizens:
Effective from April 1, 2025, the tax deducted at source (TDS) on senior citizens' FDs will be reduced. The TDS threshold is set to increase from the current ₹50,000 to ₹100,000. Consequently, TDS will apply only if a senior citizen's total interest income from savings accounts, FDs, and recurring deposits exceeds ₹100,000 in a financial year. For the general populace, the TDS limit remains at ₹50,000.
Analysts' Recommendations:
Post the repo rate cut, it's anticipated that the government will reduce interest rates on small savings schemes, potentially affecting the April-June quarter. Since these rates are typically aligned with bank interest rates, any reduction by banks could influence small savings schemes. If you have matured investments in such schemes, consider reallocating them to high-interest FDs.
Investment Strategy Tips:
Staggered Investments: Avoid locking your entire investment into a single long-term FD. For example, if you have ₹500,000, divide it into five separate FDs with tenures not exceeding one or two years. This approach provides flexibility to reinvest at higher rates if they rise in the future.
Diversification: Given the current global economic volatility, it's prudent to diversify your investments. A suggested allocation strategy for ₹100 could be:
- ₹30 in FDs
- ₹30 in the stock market
- ₹20 in mutual funds
- ₹10 in gold
- ₹10 in insurance and other instruments
Ensure each investment aligns with a specific financial goal. Goal-oriented investing allows you to monitor performance and assess whether returns meet your needs.
In summary, senior citizens should act promptly to capitalize on the current high FD interest rates before anticipated reductions. Diversifying investments and setting clear financial objectives can help navigate the evolving economic landscape effectively.
