Retirement
SCSS vs FD for Senior Citizens: Which Pays More After Tax?
For retirees who need regular income, the Senior Citizens' Savings Scheme currently pays 8.2% a year, which is usually more than a bank FD, with interest every quarter and a government guarantee. The catches are a ₹30 lakh cap, a 5-year lock-in, fully taxable interest, and TDS once the interest passes ₹1 lakh a year.
How SCSS works
SCSS is for residents aged 60 or above. Retirees aged 55 to 60 can also join in certain cases, such as retiring under superannuation or VRS, and retired defence personnel can join from age 50. The limit is ₹30 lakh across all your SCSS accounts, with a minimum of ₹1,000. The account runs for 5 years and can then be extended in blocks of 3 years. The interest rate is fixed for your account when you open it, so later quarterly changes do not touch it, and the extension earns the rate that applies at maturity.
Interest is credited every quarter. On the full ₹30 lakh at 8.2%, that is ₹61,500 a quarter, about ₹20,500 a month on average, or ₹2.46 lakh a year, and ₹12.3 lakh over five years, with your principal returned at the end.
SCSS vs a bank FD
- Rate: SCSS is generally ahead of bank FD rates for seniors, but FD rates differ by bank and tenure, so compare today's quotes.
- Payout: SCSS pays quarterly. Many FDs offer monthly, quarterly or cumulative options, which gives you a little more flexibility.
- Safety: SCSS is a government scheme. A bank FD is covered by deposit insurance only up to ₹5 lakh per depositor per bank, so large FDs need more thought.
- Limit: SCSS stops at ₹30 lakh, while an FD can take any amount.
- Flexibility: closing an SCSS account within the first year pays no interest, closing after one year but before two costs 1.5% of the deposit, and closing after two years costs 1%. Many FDs are easier to break.
Tax and TDS
Interest from both is taxed at your slab rate. For SCSS, TDS applies once the interest in a financial year exceeds ₹1,00,000, which is the threshold for senior citizens from FY 2025-26, up from ₹50,000 earlier. Whether you owe any tax depends on your total income; if your total tax for the year will be nil, Form 15H can stop TDS from being deducted. Under the old tax regime, SCSS deposits also qualify for the 80C deduction up to ₹1.5 lakh. Our income tax calculator shows your own position.
A sensible way to use it
- Put the part of your savings that must produce a steady income into SCSS, up to the limit, and compare the balance with FDs from banks you trust.
- Each eligible spouse can open their own account, so a couple can use the limit twice.
- Keep an emergency reserve outside the lock-in, in an easily accessible account or fund.
- Remember inflation: a fixed income buys less each year, as this guide explains.