Banks Hike FD Rates for Senior Citizens - Is it Time to Invest?

The RBI has constantly been increasing interest rates for the last few months to fight inflation. While the interest rates for loans have increased, which has affected people’s borrowing decisions, there has also been an increase in the deposit rates.

Whether it's the savings bank account interest rate or the bank fixed deposit interest rate, there is an increase in the earnings of the depositors. Many senior citizens consider fixed deposits as their investment avenue because of the fixed returns and market security. However, is it the right time to invest in FDs for senior citizens after the increase in the bank's FD rates ? Let us understand.

Current Interest Rates for Senior Citizens

Currently, the senior citizen FD rates are anywhere between 3.5 % to 7.5 % depending upon tenure in our Bank currently (subject to change). This is after the increase in the repo rates by the RBI in the last few months.

Hike in interest rates for senior citizens

The RBI hiked interest rates thrice, beginning in May 2022 when it hiked 40 bps, then 50 bps in June 2022, and again 50 bps in August 2022. This was followed by another rate hike of 0.50% in September 2022 end. Therefore, the interest rates have increased by 1.90% in the past five months.

Types of Fixed Deposit Accounts

The following are some of the most common types of fixed deposits:

Cumulative fixed deposit

In terms of Reserve Bank of India directives, interest shall be calculated at quarterly compounding intervals on Term deposits and paid at the rate decided by the Bank depending upon the period of deposits .In this scheme ,depositor gets benefit to earn interest on both principal and interest components. Our bank is having Cumulative fixed deposit in the name of Baroda Regular Income cum Recurring Deposit.

Non-cumulative fixed deposit

In this scheme / product interest is not accumulated but paid to the depositor at regular intervals. This ensures a passive income for the depositor. Our bank is having Non -cumulative fixed deposit in the name of -Baroda Regular Income PLAN – MONTHLY INCOME PLAN, Baroda Regular Income PLAN –QUARTELY INCOME PLAN.

Tax saving fixed deposit:

These fixed deposits come with a lock-in period of five years and are eligible for deductions under Section 80C of the Income Tax Act, 1961. The maximum amount of deduction that can be claimed is up to Rs. 1, 50,000 /- per annum as per Income tax guidelines .Bank of Baroda is having the tax saving fixed deposit scheme in the name of BARODA TAX SAVINGS TERM DEPOSIT ACCOUNT.

Flexi fixed deposit:

Selective schemes of Savings and Current accounts have facility of Auto Sweep where balances above a certain threshold are swept out to Flexi Deposits in multiples of a sweep out account (Threshold amount ,Sweep out amount and deposit period are scheme specific ).Whenever the balance in savings /current account fall short below (stipulated balance requirement ) to clear any debits in the operative account ,the FFD can be broken in last in first Out (LIFO ) principle (in multiples of sweep amount specific to scheme )as per the guidelines of the Bank .

Should Senior Citizens Consider Opening Fixed Deposits with Bank of Baroda for Higher Rates?

For senior citizens, the security of the capital invested is important, and therefore, they always prefer senior citizens fixed deposits. Normally, interest rates for senior citizen fixed deposits ranges anywhere around 0.5 % additional to that of the interest rates offered to the General public. Currently maximum rate of interest for senior citizens is 7.5%.

Therefore, opening fixed deposits with the Bank of Baroda will not only allow you to secure your investments but also earn a higher return on your investments.

Advise to Investors

Senior citizens have less risk appetite, and therefore, they prefer investing in safer investment avenues. Fixed deposits ensure that senior citizens earn good returns with minimal risk. If you are a senior citizen considering opening a fixed deposit, then Bank of Baroda offers you a great opportunity not only to invest securely but also to earn good returns. If you want to calculate your returns, you can use the FD calculator and earn lucrative returns on your investments.