Senior citizens: Comparing SCSS and bank FDs for safer returns, tax rules, income needs

For senior citizens, selecting the right investment instrument is crucial to ensure steady income and protection of capital. Among the most popular options are the Senior Citizen Savings Scheme (SCSS) and Senior Citizen Fixed Deposits (FDs). While both are secure, offer guaranteed returns, and enjoy widespread trust, their features, flexibility, and benefits differ. Understanding these distinctions can help retirees make better-informed choices.

Senior Citizen Savings Scheme (SCSS)

The SCSS is a government-backed small savings scheme exclusively designed for individuals aged 60 and above. It currently offers an interest rate of 8.2%, one of the highest among safe investment products. The interest is credited quarterly to the investor’s savings account, making it ideal for those seeking regular income.

The scheme operates like a five-year fixed deposit, extendable in blocks of three years. The minimum deposit is Rs 1,000, while the maximum investment allowed is Rs 30 lakh in a single name. Unlike FDs, SCSS accounts can only be opened once with a lump sum deposit. However, retirees can open multiple accounts across different banks or post offices, provided the combined balance does not exceed the Rs 30 lakh cap.

SCSS accounts can be opened either at post offices or at over 25 banks authorised by the Reserve Bank of India. Joint accounts are also allowed with a spouse, and in the event of the first holder’s death, the spouse can continue the account under the same terms.

One key consideration is taxation: the interest earned is fully taxable. Further, banks and post offices will deduct TDS if annual interest exceeds Rs 1 lakh, a threshold enhanced from Rs 50,000 in the Union Budget 2025.

Sameer Mathur, MD and Founder of Roinet Solution, notes: “SCSS is extremely safe with practically zero default risk. It offers regular quarterly payouts, helping retirees manage expenses. Premature withdrawals are allowed but with penalties, so plan investments carefully. Higher returns often come with higher risk, so balancing safety and yield is key.”

Senior Citizen Fixed Deposits (FDs)

Senior Citizen FDs are term deposits offered by banks with higher interest rates for individuals over 60. The rates range between 2.5% and 8.25%, depending on the bank and tenure, which can vary from a few months to more than five years.

Unlike SCSS, senior citizen FDs are flexible. Retirees can choose payout frequencies—monthly, quarterly, half-yearly, or annually—turning their interest income into a regular cash flow. FDs also allow reinvestment of interest for wealth accumulation. Some FDs qualify as tax-saving deposits under Section 80C of the Income Tax Act, up to Rs 1.5 lakh.

Bank-wise FD Rates

Interest rates vary widely across banks. For instance, as of 2025:

Yes Bank offers up to 8% on short-term deposits and 7.75% for longer tenures.

IDFC First Bank provides 3.5%–7.25% depending on tenure, with 7% for deposits over five years.

Repco Bank leads with 8.25% on certain tenures.

IndusInd Bank offers up to 7.75%.

This range allows flexibility for seniors to choose based on liquidity needs and return expectations.

Senior citizens can now earn attractive returns on fixed deposits, with some small finance banks offering rates above 8%. slice Small Finance Bank is offering 8.25% on a five-year FD, while Suryoday Small Finance Bank leads with 8.4%. Jana Small Finance Bank is also offering competitive returns of 8%.

Suryoday Small Finance Bank: 8.4%

slice Small Finance Bank: 8.25%

Jana Small Finance Bank: 8%

Taxation and TDS rules

Both SCSS and senior citizen FDs are taxable, with TDS deducted if annual interest income crosses ₹1 lakh. Importantly, TDS is not an additional tax but an advance payment that can be adjusted against actual liability at the time of filing Income Tax Returns (ITR).

From FY 2025-26, under the new tax regime, senior citizens with income up to ₹12 lakh pay no tax due to the Section 87A rebate. However, banks are mandated to deduct TDS once the ₹1 lakh interest threshold is breached, as they cannot assess individual tax liabilities.

To avoid unnecessary deductions, senior citizens should submit Form 15H at the start of each financial year, declaring that their income falls below the taxable threshold. This ensures that banks or post offices do not deduct TDS on eligible deposits.

Which one to choose

SCSS is best suited for retirees looking for higher guaranteed returns with government backing and a five-year lock-in. It ensures stability and quarterly income but has a strict deposit cap of ₹30 lakh.

Senior Citizen FDs offer flexibility in tenure, payout frequency, and reinvestment options, making them suitable for those who want customised income flows. While rates differ across banks, many offer competitive returns close to SCSS.

A balanced approach may work best: allocating a portion of retirement savings to SCSS for safety and higher yield, and another portion to FDs for flexibility and liquidity. With thoughtful planning, senior citizens can secure reliable income streams and minimise tax outgo during their retirement years.