The country’s largest banker, State Bank of India (SBI), recently announced a special fixed deposit scheme for senior citizens called, SBI ‘WECARE’ Senior Citizens’ Term Deposit scheme. The scheme is available for investment from today i.e. May 12, 2020.
SBI offers senior citizens’ an additional 50 bps interest rate across all tenors. After the latest revision, senior citizens will get 3.8% to 6,5% on FDs maturing in 7 days to 10 years.
SBI had slashed the interest rate on FDs by 20-50 bps across tenors effective March 28 in the second rate cut in March. The bank had cut interest rates on FDs on March 10.
According to the bank, the scheme has been launched to provide a higher interest rate to senior citizens in the current falling interest rate scenario as this category of investors are usually dependent on interest income. The launch of this scheme comes in the wake of several banks cutting interest rates on fixed deposits and savings bank accounts due to the Reserve Bank of India (RBI) cutting repo rate and reverse repo rate.
Here are the main features of the newly-launched scheme.
Only resident senior citizens aged sixty years and above are eligible to invest in this scheme. The scheme is a domestic term deposit, therefore NRI senior citizens are not eligible to invest in the scheme.What is the interest rate applicable to the scheme?
As per the details of the scheme available on the SBI website, the scheme will fetch 0.8 per cent above the interest rate applicable to the general public. For instance, with effect from May 12, 2020, the interest rate on five years fixed deposit for the general public is 5.70 per cent. If a senior citizen puts a fixed deposit under the special FD scheme, then interest rate applicable to the FD will be 6.50 per cent.
The SBI website says, ‘ Additional premium of 30 bps (over and above existing premium of 50 bps) over card rate for public‘. This would mean that any revision in the fixed deposit interest rates applicable to the general public in the future is likely to impact the interest rate applicable on the ‘WECARE’ fixed deposit scheme. (100 bps = 1%)
What is the tenure of FDs placed under the scheme?
A fixed deposit investment under this special scheme can be made for a minimum of five years and a maximum of 10 years.
How is interest payable as per the scheme?
Interest on fixed deposits under this scheme will be payable at monthly or quarterly intervals. The scheme details available on SBI’s website do not clarify whether the senior citizen has the option of receiving the interest payment at half-yearly or yearly intervals.
SBI is also yet to clarify whether a fixed deposit investor can opt for the cumulative option for the interest on the fixed deposit. Normally, under the cumulative option, interest on a fixed deposit is payable along with the principal amount at the time of maturity.
Remember the interest, credited to the investor’s bank account, will be net of taxes deducted by the bank. For senior citizens, TDS will be deducted if the total interest in a financial year exceeds Rs 50,000. The total of interest earned on all fixed deposits, recurring deposits or any other deposits held with the bank would be taken into account for the purpose of TDS. Interest credited in a savings bank account is not subject to TDS.
Last date of investing in the scheme
How to invest in the scheme?
Loan against fixed deposits
Premature withdrawal of the FDs under the scheme
Should you invest in the scheme?
For instance, senior citizens savings scheme (SCSS) is currently offering 7.4 per cent per annum. The interest rate differential between SBI FD and SCSS is 0.90 percent. SCSS also allows premature withdrawal albeit by paying some penalty. The tenure of the SCSS scheme is also five years.
As per the SCSS rules, if the scheme account is closed before 1 year, no interest will be payable and will be recovered if already paid. If the account is closed after one year, then an amount equal to 1.5% of the deposit is to be deducted. Similarly, if the scheme account is closed after 2 years, then 1% of the deposit will be deducted. The maximum amount that can be deposited in the scheme is Rs 15 lakh.
Interest rates on different schemes available to senior citizen
| Scheme Name | Interest Rate (%) |
| SBI Special FD scheme | 6.50 |
| Senior Citizen Savings Scheme | 7.40 |
| Post office Monthly Income Scheme | 6.60 |
| Five Year post office time deposit | 6.70 |
| RBI taxable bonds | 7.75 |
Other post office schemes such as five-year post office time deposit is currently offering 6.7 per cent and Post office monthly income scheme account is offering 6.6 per cent per annum which is slightly higher than the interest rate on SBI special FD for senior citizens.
Another option is RBI’s 7.75 per cent taxable bonds. The interest rate differential right now is 1.25 per cent. Though the bonds have a tenure of seven years, however, senior citizens do have the option of premature withdrawal.
For a senior citizen aged between 60 to 70 years, the lock-in period is six years from the date of issue. For those aged between 70 to 80 years, the lock-in is for five years and for any senior citizen above 80 years of age, a four year lock-in will be applicable. The cost of premature withdrawal is 50% of interest due and payable for the last six months of the holding period will be recovered in such cases, both in respect of cumulative and non-cumulative bonds.
Therefore, a senior citizen should evaluate all the features of the scheme and not just interest rate before making any investment.
