With FD rate cut, senior citizens set to see fall in interest income

After the repo rate cut announced by the RBI last week, the State Bank of India on Wednesday cut its fixed deposit rates for 1-2 year tenure by 10 basis points. With the latest FD rates, senior citizens in SBI will get 6.9% interest on a 1-2 year fixed deposit as compared to 7% earlier. On savings account, they will get 3.25% interest, down from 3.5% earlier for deposits up to Rs 1 lakh.

However, the FD rates are likely to come down to 50-80 points in the next few months as the RBI has announced the rate cut in five back to back revisions. There are 4.1 crores senior citizen fixed deposit accounts in SBI with Rs 14 lakh crore deposited in them. And with the latest rate cut, a senior citizen having Rs 50 lakh in FD will get his annual interest income reduced by Rs 50,00.

The move to sub-6% FD rates, however, looks inevitable. "Eventually, banks will have to move to a floating rate regime but in the short term the move will face a lot of resistance from depositors as they are not used to floating rate deposits," said Gajendra Kothari, MD & CEO, Etica Wealth Management.

According to Kothari, senior citizens should take the benefit of Senior Citizen Savings Scheme (SCSS), which offers 8.6% interest for deposits up to Rs 15 lakh and the balance in the government's 7.75% deposit schemes. According to analysts, interest rates on small savings schemes may not come down at the same rate at which bank FD rates may come down in the near future. The government will always try to protect the interest of senior citizens.