Interest up to 7.35% on 500 day special FD: Bank scheme for senior citizens and complete account of returns on ₹ 1 lakh

Bank Fixed Deposit (FD) still remains the first choice of the elderly people of the country for regular income after retirement and complete security of the deposited capital. In recent times, there has been a race between government and commercial banks to launch special tenure FD schemes to attract retail deposits. In this context, fixed deposit scheme with special maturity period of 500 days is becoming very popular among senior citizens. In this special bucket, senior citizens (60 years of age and above) are being offered an attractive annual interest rate of 7.35 percent, while for Super Senior Citizens above 80 years of age, the rate goes up to 7.50 percent. Major lenders like the country’s largest public sector bank SBI and Bank of India (BOI) are offering an additional premium of 50 basis points to 65 basis points over the normal rates in special tenure FDs. Generally, banks offer interest around 6.50% to 6.80% on a normal tenure of 1 year to 2 years, but in customized schemes like 500 days, the funds are locked for a fixed time. In return for this, higher rates are fixed. ‘BOI Akshay Deposit’, recently launched by Bank of India, is one such select scheme of 500 days, in which the general public is getting a return of 6.85% and senior citizens are getting 7.35%. At the same time, in State Bank of India (SBI), safe returns ranging from 6.95% to 7.05% are being provided to senior citizens in the bucket of 444 days ‘Amrit Vrishti’ and 400 to 500 days. If a senior citizen invests a lump sum of ₹ 1 lakh in this 7.35% scheme for 500 days, then due to the effect of compounding, his maturity amount reaches a very attractive level.

The return on fixed deposit is not just simple interest, but in banks, interest is usually calculated on quarterly compounding basis. A time period of 500 days is approximately equal to 1 year, 4 months and 15 days (approximately 1.37 years). The analysis of returns on principal amount of ₹1,00,000 with quarterly compounding at an annual interest rate of 7.35% is explained in the table below:

If the same investment of ₹5 lakh is made, within 500 days the senior citizen will receive a net interest of approximately ₹52,400 and the total fund will be ₹5,52,400. At the same time, the total accumulated interest on FD of ₹ 10 lakh will be approximately ₹ 1,04,800 and on maturity the total capital will be returned to the tune of ₹ 11,04,800. These returns are completely free from market fluctuations and risk, making it a great opportunity for retirees to beat inflation while keeping their accumulated capital safe.

Many flexible interest payment options are offered in these special FD schemes for senior citizens. Investors can choose between two main options depending on their financial needs: Option 1 ‘Re-investment/Cumulative’ (Cumulative FD) In which the interest keeps getting added to the principal amount every quarter and on completion of 500 days, both the principal and interest are transferred together to the investor’s savings account. Cumulative plans are best for senior citizens who do not want to access the money immediately and want maximum compound returns on their capital. Second option ‘Non-Cumulative / Regular Payout’ (Non-Cumulative FD) Under which the bank transfers the interest amount directly to the pension account of the investor on monthly, quarterly or half-yearly basis. If an elder needs regular cash flow for medicines, household expenses or daily living, they can opt for quarterly payouts. It is worth noting that when you choose monthly payout, the interest rate is adjusted to the discounted value, making the total return slightly lower than cumulative.

It is very important for senior citizens to understand the special rules of the Income Tax Department regarding interest on FD. Under Section 80TTB of the Income Tax Act, 1961, senior citizens aged 60 years and above get direct tax exemption of up to ₹ 50,000 on the total annual interest received from deposit schemes of all banks, co-operative banks and post offices. This means that if your total FD interest in a financial year is ₹50,000 or less, you do not have to pay any tax on it and the bank does not deduct any TDS. If the total annual interest from 500-day FDs or other deposits crosses the statutory limit of ₹50,000, then the bank is obliged to deduct TDS at the rate of 10%. However, if the total annual taxable income of a senior citizen is less than the basic exemption limit and their tax liability becomes Nil, they can deposit the amount at the beginning of the financial year at the bank branch or through net banking. Form 15H Can deposited. After submitting Form 15H, the bank does not deduct TDS from the account and the entire interest is credited to the account without any deduction.

Before investing in this special FD of 500 days, it is also important to know the rules related to liquidity. If you have to break your FD prematurely due to a medical emergency or sudden need, banks generally charge a penalty of 0.50% to 1% on the applicable interest rate. Also, interest is paid only for the period for which the money is deposited in the bank and not for the entire 500 days. To avoid this loss, most banks provide Loan Against FD or overdraft facility. Investors can avail an instant loan of 85% to 90% of their total FD amount, with an interest rate only 1% to 1.5% more than the fixed FD rate. The biggest advantage of this facility is that your 500 day FD does not break, you continue to get full interest of 7.35% on it and interest has to be paid only on the loan amount taken. With safe investment, guaranteed returns and the confidence of a government bank, this scheme is a balanced and beneficial financial move for senior citizens.