State Bank of India (SBI) has launched SBI Wecare, a deposit scheme for senior citizens. Under this, for deposits of 5-10 years, senior citizens get 80 basis points (bps) more returns than general public on their deposits, instead of the usual 50 bps.
The bank, beginning May 27, has slashed interest rates on fixed deposits by 30-40 bps across tenures.
While this downward revision of 30-40 bps across tenures holds good for senior citizen deposits, too, SBI is offering 80 bps higher for senior citizens instead of the usual 50 bps (for deposits of 5-10 years) with a view to probably protect the incomes of seniors at a time when FD interest rates are at a low.
The scheme is applicable for both fresh deposits as well as renewals.
There is no minimum amount requirement. Senior citizens can subscribe to the Wecare scheme until September 30, 2020.
In the case of premature closure, the interest payable will be calculated based on the revised tenure and a penalty of 0.5 per cent shall be deducted for deposits under ₹5 lakh. For higher amounts, a penalty of 1 per cent shall apply. No interest is paid if the deposits are withdrawn within seven days or less.
Peer comparison
ICICI Bank, starting May 20, launched a similar scheme for seniors — ICICI Bank Golden Years FD. This scheme also offers seniors an additional rate of 80bps for tenures greater than five years. Similarly, HDFC Bank, too, has been offering an additional rate of 75 bps under its Senior Citizen Care FD since May 18 for deposits over five years.
Like with SBI, seniors can start investing in these schemes (Golden Years, Senior Citizen Care) until September 30, 2020.
Currently, the Wecare scheme fetches seniors a rate of 6.2 per cent per annum following the revision in interest rates from May 27, for a tenure of five years and above.
For deposits under the ICICI’s Golden Years FD, seniors can now earn 6.55 per cent per annum for a tenure of five years one day to 10 years.
HDFC Bank’s FD offers seniors 6.5 per cent for the same tenure as ICICI Bank’s Golden Years.
The current rate offered by these schemes is lower than that offered by some of their peers.
While most public sector banks offer up to 6.3 per cent, the interest offered by some private banks go up to 7.65 per cent for a similar tenure. Small finance banksoffer a higher rate of 7.5-8.5 per cent for a similar tenure.
The Post Office Senior Citizen Savings Scheme (SCSS) that comes with an implicit government backing pays 7.4 per cent per annum for a maturity period of five years.
The SCSS also offers a tax break upon investment under section 80C (if you opt for old income-tax regime).
A point to be noted though is that the SCSS offers only an interest payout option, while bank deposits either compound or pay out the interest depending on your choice.
Should you go for it?
The returns on bank deposits have been in the benign territory in the recent past.
Last year, many banks had revised downwards the interest rates on fixed deposits, following a cumulative cut of 135 bps in the RBI’s repo rate in 2019 (calendar year).
With the RBI slashing the repo rate in March in response to the Covid-19 pandemic, coupled with a 40 bps cut announced on May 22 for the same reason, the cumulative rate cut since the beginning of 2020 has already reached 115 bps.
This move is dragging down bank deposit rates currently. The economic slowdown as a fallout of the pandemic could continue to keep the deposit interest rates soft for some more time.
However, considering the multi-year lows they are in now, deposit rates could start moving up when the situation gets better in a year or two.
Hence, locking into a five-year deposit at relatively lower rates may not be a good idea now. It would make sense to lock into short-term deposits of 1-2 years.
On maturity, you can take a call based on the prevailing rate scenario at that time.
For 1-2 years, banks such as HDFC Bank, Axis Bank and ICICI Bank offer good rates for seniors — 6.05-6.4 per cent.
SBI offers 5.6 per cent for a similar tenure.