FD rates touche 8% for Senior citizens.

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FD rates touch 8% for Senior 

 For the first time in nearly three years,Senior citizens are seeing returns of 8% and more on fixed deposits and many are rushing to their bank to review their existing FDs.Back to back rate hikes by the RBI have finally brought relief to Senior citizens who depend on interest earning for a living 

   At the peak of the pandemic, rates had dropped to as low as 5.5% due to excess liquidity in the banking system and many had locked into 2-3 year deposits to make the best in a depressed market. Now with some private banks offering 8% and public sector banks giving over 7.5%,savvy elders are looking at premature withdrawals to make fresh deposits at higher rates.

   A Senior citizen in Mumbai had booked an FD of Rs 2.5 lakh in 2020 end for three years at 5.75% in a private bank with the help of her son.Upon learning that the rate had risen to 7.75% for the same tenure,the son recently broke the FD and rebooted it.His mother will get an incremental income of nearly Rs 20,000.

   Last month, the government increased the return on the Senior citizen savings scheme (SCSS) with rates regaining the 8% level after falling to 7.4% during the pandemic. However, the gap between SCSS and bank FDs has reduced. 

  Some banks are offering even higher rates for "supper Senior citizens ", or those over 80 years.For instance, Union Bank of India offers 75 basis points(100 bps=1 percentage point) over its regular rate for super seniors, which means that they can get 8% on 700-day deposits.Punjab National Bank offers super senior citizens 80 bps over the regular rate and the highest return for them is 8.1% on 666 day deposits.Indian Bank offers this category of investors 25bps more than other senior citizens. 

    Another Mumbai-based retiree broke an FD that he had booked less than a year ago to get a rate that was nearly two percentage points higher.While these investors said they did not incur a penalty, experts said the benefits may vary from case to case.

   Breaking an existing fixed deposit may be beneficial to some customers who have invested in FDs that don't carry a penalty for premature withdrawal, said Gaurav Gupta,founder and CEO of leading platform  Money Wide.

    Even if there is no penalty, the interest on the earlier FD will be reduced in sync with the actual tender,Gupta added.Another point to note is that FDs can be broken online only if they are booked using netbanking.In cases where Physical Certificates have been issued,depositors need to go the bank for a premature withdrawal.Experts said thT depositors should approach a financial advisor to determine if they can benefit from a switch.