Introduction to SBI special FD scheme for senior citizens
The SBI has announced the SBI ‘WECARE’ Senior Citizens’ Term Deposit Scheme, a separate fixed deposit scheme for senior citizens. As of May 2020, the plan has been made available for investment.
In the current declining interest rate scenario, the scheme was introduced to provide senior citizens with a higher interest rate, since this group of investors are dependent on interest income. The implementation of this mechanism comes in the face of many banks reducing interest rates on fixed deposits and savings bank accounts owing to the lowering of the repo rate and reverse repo rate by the RBI.
Here are the main characteristics of this newly-launched special FD scheme.
Who is allowed to invest in this scheme?
Investment in this programme is only available for resident senior citizens aged sixty years and over. The scheme is a domestic term deposit, so senior NRI residents are not eligible to participate in the scheme.
What is the applicable interest rate for the scheme?
As per the specifics of the scheme, 0.8% above the interest rate applicable to the general public will be paid by the plan. E.g. The interest rate on a five-year fixed deposit for the general public is 5.70 % with effect from May 12, 2020. When a senior citizen places a fixed deposit under the unique FD programme, 6.50 per cent Senior Citizen FD Interest Rates would be available.
Although, since May 27, 2020, the interest rate on the SBI fixed deposit has again been changed. Now for the general public, the interest rate on a five year fixed deposit is 5.40 per cent. The interest rate available would be 6.20 per cent for senior citizens saving in a special FD programme.
According to the notification on the SBI website,’ an extra 30 bps premium (over and above the present 50 bps) over the public card rate is offered to the senior citizens.’ This will suggest that any potential development in the fixed deposit interest rates applied to the general public is likely to affect the interest rate applicable to the fixed deposit system of ‘WECARE.’ (100 bps = 1 %).
What are the tenures available for this special FD scheme?
In this unique arrangement, a fixed deposit investment is made for a minimum of five years and a maximum of 10 years.
How is the interest paid?
Interest is paid at monthly or quarterly intervals on the fixed deposits under this arrangement. The specifics of the programme do not explain if the elderly resident has the option of collecting interest payments at intervals of half a year or annually.
Furthermore, the SBI has yet to explain whether the depositors can apply for a cumulative interest option on the fixed deposit. Usually, in the incremental option, interest on a fixed deposit is paid at the time of maturity along with the principal balance.
Note: The interest added to the account of the depositor is the net taxes deducted by the bank. For senior citizens, if the cumulative interest in a financial year reaches ₹ 50,000, TDS will be deducted. For TDS, the total interest received on all fixed deposits, recurring deposits or any other deposits kept with the bank would be taken into account. TDS is not applied on interest earned on a savings bank account.
Last date of investing in the scheme
The availability of this scheme has been extended; it is now available till the end of this year (December 31 2020)
How can senior citizens invest in the scheme?
By visiting an SBI bank branch, a senior citizen will invest in the scheme. SBI’s customers can invest in the FD via the bank’s net banking or Yono app.
Loan against FDs
In an emergency, a senior citizen can take out a loan against FDs to meet their financial needs.
In the premature withdrawal of the fixed deposit under the scheme, the extra interest, i.e. 30 bps under the plan, would not be payable. Therefore, if you opt for the early withdrawal of an FD under the scheme, the savings in a fixed deposit would be just 0.50% more than the interest rate available to the general public.
Should senior citizens invest their savings in the scheme?
Suppose a senior citizen is looking for a fair return and protection of his/her principal cash. In that case, other alternatives provide better interest rates relative to SBI special FD.
E.g. 7.4 per cent per annum is currently provided by the Senior Citizens Savings Scheme. The disparity in interest rates between SBI FD and SCSS is 0.90 per cent. SCSS also provides the option of premature termination although with a penalty. Also, the tenure of the SCSS is five years.
According to the SCSS rules, no interest will be payable if the scheme account is closed before one year and will be collected if it has already been paid. If the account is closed after a year, an amount equal to 1.5% of the deposit will be deducted. And if after two years the scheme account is closed down, then 1 per cent of the deposit will be deducted. The maximum sum that can be invested in the scheme is ₹ 15 lakh.
There are other plans, such as the five-year post office time deposit, which pays 6.7 per cent and the monthly income account of the post office scheme pays 6.6 % a year which is marginally higher than the Senior Citizen FD Interest Rates offered on the special FD scheme.
Pradhan Mantri Vaya Vandana Yojana (PMVVY) is another choice for an attractive investment. The scheme gives 7.4% for a term of 10 years. It is a pension-based plan in which the contribution is made in line with the pension amount and frequency of the pension the beneficiary wishes to obtain. Pension income can be collected monthly, quarterly, semi-annual and annually.
An investor can earn a minimum of ₹ 1,000 per month and a limit of ₹ 9,250 per month as pension. Premature removal from the plan is only approved under critical self or spousal disease.
Therefore, before making any investment, a senior citizen should assess all the characteristics of the scheme and not just the interest rate. So that minor technical points do not come in their way of earning safe and secure interest money.