Fixed Deposit: The Best Investment Scheme for Senior Citizens

Fixed Deposits (FDs) have always been a popular investment option among senior citizens. Those above 60 are offered the best FD rates because the fixed deposit interest rates for senior citizens is much higher than regular term deposits. At present, the term deposit rates offered to senior citizens range from 4% to 7.25%. The best FD rates offered are above 7% for those in this age group. Time deposits not only offer security but are also comparatively risk-free and come with guaranteed returns.

There are many types of deposits that a retiree can invest in, including the option to choose different interest payout options, where there is a regular flow of interest income. This is especially helpful to those who are retired and depend on income from interest.

Best FDs for senior citizens:

Not many people know that there are many types of fixed deposits for senior citizens and it is not limited to just one type. Among the term deposit options available in the market, we take a look at some that will best suit the interests of those above 60.

• Non-cumulative term deposits: This is one of the best investment options for those who are retired or above 60 because of the regular interest payout option. Here, the term deposit holder will be paid interest at specific frequencies. The payment may be made monthly, quarterly, half-yearly or even annually, depending on what the investor goes for. Here the principal remains intact  but the interest that is earned is credited back to to the customer’s bank account at regular intervals. This is a good type of supplementary income for those who are retired and need some kind of secondary income to run the household.
• Sweep in deposit: Not many people know about sweep in deposits. They offer the best FD rates, which are comparatively higher than those offered on regular savings accounts or term deposits. A sweep in deposit is nothing but a type of term deposit account that offers the account holder the liquidity of a savings account but also the benefits of a fixed deposit. For example, if the maximum balance in a savings account is Rs.20,000 and you have Rs.80,000, the remaining Rs.60,000 will be automatically converted into a fixed deposit. So, if a customer uses Rs.25,000, the additional Rs.5000 will be adjusted from the deposit and still continue to earn interest on the remaining amount.
• Tax saver deposits: This is a type of time deposit that is very different from other deposits because it exclusively offers a tax benefit, which is ideal for senior citizens. These types of term deposits will offer a retiree the best tax benefit while simultaneously earning an interest on the same investment. A tax exemption can be claimed under Section 80C of the Income Tax Act for up to Rs.1.5 lakh. A minor drawback here is that the scheme comes with a lock in period of a minimum of 5 years.
• Reinvestment scheme: These deposits not only offer the best FD rates but also allow the investor to earn the maximum possible returns on their investment. Here, the interest that is earned is added back to the principal and compounded. Typically, the interest earned on these types of deposits are much higher, making it a very lucrative, yet safe, investment option for senior citizens.

Why senior citizens should invest in fixed deposits

• Best FD rates: Fixed Deposit interest rates for senior citizens are much higher than those offered to regular deposit holders. Therefore, for a senior citizen, a term deposit pays more money when compared to a regular individual.

• Interest as income: The interest income that is earned from non-cumulative deposits are a good source of income for those above 60. The best part is that you can have more than 1 deposit and earn good income from the same. For example, if a senior citizen couple have 2 schemes each and each earns an interest amount of Rs.2000 per month, the monthly income from fixed deposits will add up to Rs.8000. Therefore, the total income that is gained from all the four term deposits will be very beneficial.

• Safety net: There is almost no element of risk involved in a time deposit when compared to other types of investments such as shares or mutual funds. Though the rate of return may not be as lucrative, this is a best bet for senior citizens because it is not advisable for people in that age group to take too many financial risks.

• Liquidity: The best part about a fixed deposit is that you can withdraw money prematurely at any point of time. This is a great advantage for senior citizens because it gives them the advantage of liquidity. In case of a medical emergency or a financial problem, the time deposit can be broken easily to meet needs without any hassle.

• Loan/overdraft facility on time deposit: The best part about an FD is that you do not have to break it at the time of emergency if you want to retain the deposit account. Almost all banks offer customers the facility to take a loan of up to 90% on the deposit amount and still continue to earn interest on the remaining. The best part about this is that the interest rate charged for such loans are much lesser when compared to regular loan rates. For example, if you are earning an interest rate of 6% on your FD, the bank will charge not more than 2% to 3% for the loan. Therefore, the rate of interest charged for the loan will be around 7% to 9%. This is much lesser than loan interest rates which typically average around 12% to 16% in most cases.

How to choose the best FD

• Check the credit rating of the bank or financial institution that is offering the time deposit
• Do a background check of the bank/company’s repayment history, balance sheet and financial position
• Try to avoid unrated time deposit schemes and do not be lured by unreasonably high interest rates
• Usually bank deposits are secure and also come with deposit insurance. So choose bank FDs over company FDs

To sum it up, there are numerous benefits that senior citizens can get from an FD. It is a wise option for people in that age group.

Should The Maturing Fixed Deposit Be Renewed In The Present Rates Of Interest?

Fixed Deposit Maturity

In case you made an investment in a particular bank fixed deposit 5 years ago, the lock-in rate that you must have availed was approximately 9%. Given the present situation, one can expect best bank fixed deposit rate is 7.5%. In case you are in the tax bracket of 30%, it means that after tax return there will be a trivial 5%. Some of the alternatives that can offer you more are mentioned below:

Government Savings Bond:

The government savings bond offer 8% interest and great safety level. The guarantee is offered by the Indian Government itself, which means there is nothing to worry.  However, interest that is earned is also taxable according to the tax slab that you are in. The Government Savings Bond also have a lock-in period of 6 years. Anyone can invest in the government savings bonds via banks and other financial institutions. The sum that can be invested does not have any upper limit. The funds are not transferable or tradeable, so one must be aware of the liquidity factor with the government savings bonds.

Corporate Fixed Deposits:

The rates of interest offered by the corporate fixed deposits are 1% to 2% more than the FDs offered by the banks. You must only consider the AAA rates deposits from issuers who are well reputed. This will ensure the safety of your capital. All the senior citizens an avail 25 bps more as return on the corporate fixed deposits.

Small Savings Scheme:

Post office savings schemes or small savings schemes include different types of instruments that offer good returns. The returns offered by these schemes are better than the returns offered by the bank FDs. The NSC or National Savings Certificates can also prove to be a very good option for investing if you can invest for a period of 5 years. The interest rate that they offer stands at 8%. After tax is paid, the return will stand at 5.6% for an individual in the highest of tax brackets. Another long term investment option that you may choose is the Kisan Vikas Patra. Under this particular scheme, the investment that you make becomes double in a period of 9 years and 4 months. PPF or Public Provident Fund remains as the best option although the rates are down to 8%. Parents who have daughters below 10 years of age may choose to invest in Sukanya Samriddhi Yojana. This scheme offers a rate of interest that stands at 8.5%.

Debt funds:

The debt funds offer good returns than the fixed deposits offered by the banks. The debt funds come with great liquidity. As the returns are linked to the market there are risks involved with debt funds. Dhawal Dalal of Edelweiss Mutual Fund suggested investors to go for the fund houses that are established and have fund management teams that are experienced. Indexation benefit can be availed with the debt funds, which is easily the best part of such funds. However, the investment must continue for a period of three years at least.

In case you invest before the end of the current FY, you will be allowed to claim the indexation benefits for a period of 4 years. Debts funds are a lucrative option as capital gains reduce to 4 indexations and the gains can be tax free for redemption or maturity after April 1, 2020.

Get the Age-Advantage When Buying Life Insurance

Financial experts usually advise you to get a life insurance and a medical insurance policy as soon as you get a job. Life insurance policies are supposed to take care of your dependents in your absence. Many young professionals may not feel the need to buy life insurance right after getting a job because we do not have any liabilities. However, over time our liabilities do increase as we get married and have children. Securing the future of our kids and spouse is our utmost responsibility and life insurance plans help us to some extent.

There are quite a few advantages to buying life insurance early in life, which have been discussed below:

1. Longer term for the policy

Buying an insurance policy when you are young allows you to stretch the insurance policy to the longest period possible. You get plenty of time to accumulate the corpus that you feel would be adequate in covering your future expenses. For instance, if you feel Rs 2 crores would be sufficient to produce a steady stream of income for your family in your absence, then you get almost 37 years to save the amount if you buy an insurance policy at the age of 23. If you buy it later in life, then the term is cut short and the pressure mounts on you to make the payments.
2. Easier Approval

Insurance companies want to sell policies to healthy individuals as it would lead to lesser liability. The number of claims would be fewer and they stand to make better profits. Individuals in their 20s are more or less in the pink of health which is why they are considered to be the best customers for insurances. Their policies are approved quite easily without too many health check-ups. As you grow older, your probability of contracting a disease like diabetes or high blood pressure increases which may make insurance companies sceptical about granting you a policy. In case of chronic diseases, the insurance company may refuse to sell you a policy altogether.
3. Lower Premium

Insurance companies charge lower premiums for buyers who are young and pose less risk for a claim. If you buy a life insurance policy in your early twenties, you have to pay a moderate premium to maintain the policy and hence you would be less burdened. You can invest the rest of your salary in policies which offer higher returns such as ULIP or mutual funds.
4. Using your life insurance policy as collateral

Life insurance policies can be used as collateral against different kinds of loans. The loan granted to you is proportional to the surrender value of the policy. The earlier you start, the bigger is the corpus you accumulate in your insurance policy which would in turn lead to a larger sum being sanctioned. For instance, if you want a car loan of Rs 4 lakhs at the age of 30, you have to have at least Rs 4 lakhs in your insurance policy for using it as collateral. Unless you start early, accumulating this sizeable sum would be difficult for you.

An Expert Insight into Life Insurance

image credits:best life quote

Life Insurance is your future financial protection that protects you financially for all the life stages awaiting you.

There is a set cycle for your life. One takes birth and one day becomes mortal. Several lives associated with that person suffers due to misfortune. Fulfilling one’s responsibility towards his/her family is a priority. ‘Life Insurance’ is the wiser option.

A Decision for taking life insurance is not an easy one. It requires a deep insight into one’s present cash flows and the future cash flows affected by an inflation rate. Your family should not suffer from any cash deficiency because of the unplanned decision. There are different types of life insurance products in a market. Choosing one among them requires lots of calculations and research. An expert guidance may help you even better for taking a decision.

Let’s highlight some of the Expert’s insight into life insurance from a customer point of view:

Anuj Agarwal- MD and CEO, Bajaj Allianz Life Insurance

image credits:reproductive-fitness.com

MD and CEO of Bajaj Allianz Life Insurance narrated entire life insurance aspects for its customers. Let’s read ‘What he says’…

Things to follow!

1. Buy life insurance for your future financial protection and to maintain the future standard of living.
2. Buy life insurance to inhibit a discipline of savings in yourself.
3. Protect your loved ones with a death benefit.
4. Plan your life insurance on the basis of your cash flows present and future.
5. Serve your family financially for unplanned and untimely requirements.
   Buy life insurance, keeping in mind all the stages of life birth of a child, education of a child, marriage event and finally retirement stage.
6. Life insurance provides an individual with inflation hedge savings.
7. Plan for your retirement income in advance while buying a life insurance.
   Things to avoid!

Signing a blank application form, leaving the rest to be filled by your agent.
Escaping a health declaration form.
Avoiding the above two things would help you in settling your claims with no hassles and barriers.

Ms Shikha Sharma- MD and CEO, ICICI Prudential Life Insurance

MD and CEO of ICICI Prudential Life Insurance has wisely commented on the aspects that are to be taken care when buying a life insurance.

Let’s read through its detailed part:

1. Buy a life insurance in order to commensurate with your present and would be future financial position. If you are earning high, take a life insurance of higher death benefit.
2. Human Life Value (HLV) i.e. net present value of one’s future earnings should be considered in advance.
3. Thumb rule:
   1.  For a 30-year-old- sum insured should be equivalent to 8 x annual income.
   2. For a 35-year-old- sum insured should be equivalent to 6 x annual income.
4. Planning your milestones in advance would certainly help you a lot.
5. Assess your needs and requirements before going for a life insurance.
   All the above-discussed aspects are quite a learning for the individuals. Consider all these factors before buying a life insurance.

Extract the maximum out of your life insurance policy. You just need to follow the above aspects discussed by the ‘Experts’.

“Live Healthy, Wealthy and Wise”!

The Smart Investor- 8 Things About Term Life Insurance You Should Know

Right, the big question about tax savings, insurance and their ilk. While the classic term life insurance policy looks like a lucrative option to help you save taxes and bundle up finances for the time when you aren’t around anymore, there are pointers about it that might raise a bit of concern. As a smart investor, find everything you must about term life insurance before you actually invest in it. As they say, not everything that shines is gold!!

However, term life insurance is a massively popular option with the Indian populace. All the major insurance players market this lucrative policy that offers the buying customer a measure of security, helping him/her plan for the future of their immediate loved ones in the event of their own untimely demise. Who doesn’t want to feel secure and protected in these times of financial, social and medical uncertainties?

Herein is a comprehensive look at term life insurance policies. A fine mix of pros and cons-

1.       It’s Super Affordable– Term life insurance is definitely the cheapest form of life insurance that you can buy.

2.       Not Rocket Science– It’s easy to understand the workings of a term life insurance. You are purchasing pure death protection without equity or maturity benefits. The documentation doesn’t have too many variables or complicated clauses.

3.       Value for your Money– Purchase the sum insurance that is just right for you, without having to pay more than what is affordable.

4.       Not designed to last a Lifetime– Usually, premiums increment and ultimately become cost prohibitive, thus rendering your policy unmanageable beyond a certain term. A vast majority of the people outlive the coverage and have to abandon the policy due to the high upkeep costs.

5.       Guaranteed and Affordable Rates– Another advantage of term insurance is that the rates remain a constant figure. Lock in rates is available for a wide range of tenures, alongside options for lifetime guaranteed term policy.

6.       Covers Short Term Needs– Term life insurance can also be sometimes used as a stopgap solution for temporary obligations. For example, any financial debt that is viewed as a probable pain point for your family after your demise can be accounted for using a term life insurance.

7.       Zero Cash Value– The lack of any maturity benefits makes this an investment with no actual cash value.

8.       Turns Cost Prohibitive over Time– A big drawback of term life insurance policies is that they tend to become cost prohibitive over time, as they are designed to be temporary. If you are looking for a life insurance solution that extends beyond your own life expectancy than this option wouldn’t  work. Premium payments for term life insurance policies increase after the initial guarantee period is exhausted- thus, it isn’t feasible in terms of the rising costs.

As is obvious, term life insurance policy isn’t  about cash returns on maturity or a profitable proposition after the initial guarantee period is completed. However, its affordability and ease of execution has earned it a loyal fan following. Amongst the less investment minded people, its tax saving property is a sure fire hit- yesterday, today and far into the future.