Senior Citizen Savings Scheme best option for retired employees

The spike in inflation across the world has made the central bankers to hike the interest rates. This is the fallout of multiple issues like supply chain issues, ongoing war in the post-pandemic world when most of the western governments and central banks have embarked on an unprecedented fiscal and monetary splurge to stave off their economies from an imminent recession. That plunged the interest rates hurting the savers especially the senior citizens whose reliance on fixed income instruments always remained high.

Now, that the interest rates revived, this is the section of the population which cheered the most, though the real rates are still not very attractive, particularly in the western world. At this backdrop, the increase of interest rate for the Senior Citizen Savings Scheme (SCSS) is welcomed. The interest rate on this plan has been increased to 8.2 per cent in April’23 from that of 7.6 per cent in December’22.

The SCSS is available to all resident Indians above the age of 60 years. This could be opened at any of the banks or post office and is guaranteed by the Government of India (GoI). SCSS was launched by GoI in 2004, is a deposit scheme to provide guaranteed returns to senior citizens. The interest mentioned is prevailed for the entire tenure of the scheme i.e., if opened in May’23, the interest rate remains fixed till the maturity.

The scheme could be availed by the eligible by opening a deposit account which lasts for five years, when it’s matured. Of course, one could increase the tenure by another three years at the time of maturity. However, the interest for the extended period would be same as the prevailing rate of interest at that point of time ie, the prevailing rate at the time of the extension.

The interest is accrued quarterly and is automatically credited to the account of the depositor on the first working day of April, July, October and January of every year. A contribution up to Rs 1.5 lakh is eligible for tax deduction u/s 80 (C) of the income tax. The upper limit for availing benefit under this account is Rs 30 lakh per person which was increased from Rs 15 lakh.

A person younger than 60 could also open this account as a joint holder with a spouse who is a senior citizen. At least one of the account holders must be 60 years or beyond with no age limit for the second applicant. The higher aged person is considered as the primary account holder in such cases. So, if both the partners are above 60 years of age then they could collectively use this scheme for up to Rs 60 lakh. Alternatively, a retired civilian employee (55 to 60 years of age) or a retired defence employee (50 to 60 years of age) could also open this account if they invest within one month of receiving the retirement benefit.

The three-year extension of the account could be done beyond the maturity only once. One can’t top-up or add more money to an existing account in this scheme but instead could have multiple accounts not exceeding the Rs 30-lakh limit. If one has already extended the account beyond the maturity, then one could open new one after closing the existing one. Premature withdrawal is allowed but with a penalty.

If one were to withdraw within one year, the interest won’t be accrued to that account. The paid interest is recovered from the principal. There’s a 1.5 per cent of principal is deducted if the request is for a withdrawal before two years and after one year. Between two and five years, the premature withdrawal attracts 1 per cent of principal as penalty. In case of an extension beyond the maturity ie, five years and up to six years there’s no explicit guidelines mentioned as of now. However, it’s freewill of the depositor to close the account between 6-8 years, in case of an extension of a normal account.

A nomination is required at the time of opening and could be modified during the tenure of the account. In an unfortunate event of death of the depositor, the account could be continued by the spouse, only if, they’re over age of 60. Nevertheless, there’re no penalties in case of withdrawal due to the death of the depositor at any point of the tenure. The interest rate in these cases would be paid as per the scheme till the date of death and the post office account rate till the date of account closure.

This is a secured (capital/principal) and guaranteed (interest) by the GoI and so is suitable for conservative senior citizens who’re looking for a constant regular income. It could be obtained as a joint holder if both of them are above the age of 60 or even otherwise where they’re nearer to 60 as this scheme has a unique provision to continue in case of the primary holder’s sudden demise and the spouse having attained age of 60.

(The author is a co-founder of “Wealocity”, a wealth management firm and could be reached at [email protected])