The interest being received by senior citizens and other investors dependent on income from fixed deposits of the bank is less than the actual inflation. The Reserve Bank in its latest monetary policy has projected retail inflation to be 5.3 percent during the current financial year. The RBI had last week said that inflation based on the Consumer Price Index would be 5.3 per cent during 2021-22. On this, the country’s largest bank State Bank of India will get negative interest on getting FD for one year and the real interest rate for the saver will be (-) 0.3 percent.
The real interest rate can be calculated by subtracting the rate of inflation from the interest rate offered by the bank. Inflation in August stood at 5.3 percent. Although it has come down a bit in September, it will not make much difference on the quarterly or half yearly estimates. On holding FD for two to three years, interest will be available at the rate of 5.10 percent, which is less than the estimated inflation for the current financial year.
HDFC Bank, the largest private sector lender, offers an interest rate of 4.90 per cent for tenors of one to two years. Whereas the interest rate for two to three years is 5.15 percent. However, small savings schemes run by the government are giving better returns than the fixed deposit rates of banks. The interest rate for fixed deposits of one to three years under small savings schemes is 5.5 per cent, which is higher than the inflation rate.
Vivek Iyer, Partner, Grant Thornton India, said that real rates may remain negative for some time and it is important that people choose the right investment option based on financial literacy.
Jyoti Prakash Gadia, Managing Director, Risurjet India said that the impact of low interest rates on deposits is visible and people are investing in mutual funds and equities for better returns.
Senior citizens can invest in these schemes:
Senior Citizen Savings Scheme
The tenure of the Senior Citizen Savings Scheme is five years. Under this, more than one account can be opened but maximum investment of Rs 15 lakh can be done in it. The Senior Citizen Savings Scheme interest for the April-June quarter stood at 7.4 per cent. However, the income earned from this is taxed.
Pradhan Mantri Vaya Vandana Yojana
The period of Pradhan Mantri Vaya Vandana Yojana has now been extended to March 31, 2023. The entry age is 60 years. In the financial year ended March 31, 2021, it was getting 7.40 percent interest. The interest rate will be fixed every year. In this also a maximum deposit of Rs 15 lakh can be made. On the survival of the pensioner for the policy term of ten years, the amount invested and the final pension installment will be added.
Post Office Monthly Income Scheme
The Post Office Monthly Income Scheme has a tenure of five years. In this, only one time fixed interest rate is available till the end. The interest rate for the quarter ended June was 6.6 per cent. A maximum deposit of Rs 4.5 lakh can be made through a single account. Nine lakh rupees can be deposited through the same joint account.