How attractive is Senior Citizen Savings Scheme offering 8% Interest?

Interest Rates are on Rise. Should you Invest?

Senior Citizen Savings Scheme (SCSS) interest rates have recently been increased to 8% in the January-March quarter of FY 2022-23. This means for the new accounts or extensions during this quarter, investors will earn 8 % ROI for the Investment tenure.

Unlike PPF which gets impacted with Rate Change (If any) every financial quarter, investments in SCSS will earn a fixed rate till maturity. 

So the question is , Should Senior Citizens Invest in this product? Or are there other Alternatives too,  which can be explored.

Let’s start with Understanding how the Senior Citizen savings Scheme Actually works?

Senior Citizen Savings Scheme – in Brief

As the name says, this is the Investment Scheme meant for Senior Citizens only. This is a 5 year product with a Fixed Interest and quarterly payouts.

SCSS is a Central Government Scheme, so the safety of deposits is ensured. You can invest in this scheme through Post Office or Scheduled Commercial Banks.

FAQs and Other Important Features of Senior Citizen Savings Scheme

Who Can Invest? – 

A Resident Indian, Who has attained 60 years of age; or
who has attained the age of fifty-five years or more but less than sixty years, and who has retired on superannuation or otherwise, subject to the condition that the account is opened by such an individual within one month of the date of receipt of the retirement benefits. 
With the application form, a copy of the proof of disbursement of those retirement benefits(s) along with a certificate from the employer stating the details of retirement, retirement benefits, employment held and period of employment with the employer are to be attached.
Individuals may open the account in Single or Joint name. In case of Joint name the age of the first holder will be considered

How Much Can be Deposited? –

This is a single (One time) deposit account, and can be opened with minimum One Thousand or any sum in multiple of One thousand with a maximum Limit of Rs 15 lakh.
Even in the case of a Joint account, the Maximum limit cannot exceed Rs 15 lakh. However, both account holders may open their separate account if Eligible within the prescribed deposit limits. 

What is The Rate of Interest?

In Practice the Rate of Interests in all Small Saving Schemes are announced/revised every financial Quarter by the Government of India. But the rates work differently on different structures of products. 
For e.g. in PPF or Sukanya, which is a regular deposit account, whenever there is a change announced the same impacts the invested money and future investments. But In products like POMIS or SCSS which are one time deposit accounts, the rate at the time of account opening applies to the full investment Product tenure.
in Jan- Mar 2023, the Interest rate announced is at 8% p.a.

Can the account be Extended after Maturity?

Yes, this facility is available only once. Account holders may extend the account within one year from the date of maturity. The account can be extended for another 3 years. The rate of interest will be the one applicable on the date of extension

Premature closure rules in a Senior Citizen Savings account?

Premature closure is allowed in this account, with the following conditions
If closed with in 1 year of opening the account, the complete interest paid will be recovered and the balance amount will be returned to the depositor
If closed after 1 year but before 2 years, then 1.5% of the deposit amount will be deducted, and balance be returned.
If closed after 2 years, then 1% of the deposit amount will be deducted as Penalty
If account is running under extension, and closed after completion of 1 year than no penalty will be charged

Get More details on this product from this link

How Good is a Senior Citizen Savings Scheme account for Investment?

Now, the question is Should you Invest? 

Well, here the Senior citizens need to Understand their Monthly Income Requirement and other sources of Income. Frankly, rate of Interest wise at this point in time this SCSS account looks attractive. There could be some small banks, offering this rate to Senior citizens on fixed deposits but most banks have not yet reached this level yet

You may have to follow the bucketing approach as explained in this article. And may like to invest in a Senior Citizen Savings Account for Bucket 1. Since the maximum you can invest in is only 15 lakh, it may not be sufficient to your requirements and you have to search for some other fixed income options too.

You also have to consider the taxation aspect. The Interest earned in the SCSS scheme is taxable. So you have to do math around this too. As in if you are already earning Income through pension or other sources which are putting you in a High Tax Bracket, then you may like to evaluate investments accordingly.

For this kind of case Debt Mutual funds Investment with STP answers the requirement and manages the taxes wisely.

Otherwise if taxes are not an issue then SCSS is offering better rates at this point in time and you may like to Invest. 

Though there are always chances of further increase in rates, if the inflationary scenario persists domestically and Internationally, as central banks will try to control the same with high Interest rates. But you never know. So, if there would be an increase in rates that will definitely impact other products which may be further evaluated and acted upon, but for now SCSS is worth considering.

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He’s MBA ( Finance) gold medalist, a CERTIFIED FINANCIAL PLANNER, Chartered Trust and Estate Planner and SEBI Registered Investment adviser. He has authored a Book in collaboration with CNBC TV 18 Network 18 bestesellers , tiltled "The Art of Being Good with Money". An ex banker , having a 17+ years of long experience in financial services industry he manages clients across the globe. He is a regular contributor to various leading Media and publication houses. He has written for Moneycontrol, Dainik bhaskar, Business standard, Live mint, Indian Express, The Tribune etc. He has also appeared in TV shows by Zee Business, ET Money, National Door darshan, Jagran Online. He also delivers training on Various personal finance topics to various corporate houses. You may get in touch with him at [email protected]

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