· RBI's previous repo rate this year led banks to cut interest on FDs
· Amid this maintaining cash flow and planning for medical expenses are crucial for senior citizens
· Depend on one investment instrument is risky, a balanced portfolio have a mix of investments
The Reserve Bank of India (RBI) kept the repo rate unchanged in the August 2025 meeting. However, the banks continue to reduce their interest rates. This is related to their internal policies and alignment with the change in the repo rate and Cash Reserve Ratio in the past few months. As senior citizens typically want to save their money in instruments that can offer guaranteed returns, banks' fixed deposits (FDs) come on top. This is for two primary tenets: a simple product to understand and no operational hassle. But when interest rates are moving downward, should they stick to FDs? Wouldn't they lose on their real return after inflation?
As a matter of fact, if the interest rates go down and inflation does not, or if someone has a higher expenditure of a particular kind, such as healthcare, the real returns on investment become negative.
For someone with zero risk capacity, exploring a fixed-income instrument that offers higher interest could be an option. Compared to the interest rates hovering between 7.25 per cent and 8.00 per cent for a special tenure for seniors, the Senior Citizens Saving Scheme (SCSS) can be explored. SCSS has been operating for a longer period of five years and at present offers 8.2 per cent guaranteed returns. So, the higher rate is locked for five years.
Says Preeti Zende, a Sebi-registered investment adviser and founder of Apanadhan Financial Services: "Senior citizens need a monthly payout to take care of their monthly expenses, and for this, they need fixed income instruments that offer capital protection and assured returns. Bank FDs are one of them. But as interest on bank FDs keeps on falling, this is a concern to senior citizens."
She highlights the government's stand to keep the small saving schemes' interest rates unchanged in the July-September 2025 quarter. "They (senior citizens) can still invest in SCSS, which offers 8.20 per cent interest and where one can invest up to Rs 30 lakh. If you and your spouse both are senior citizens, then this way, Rs 60 lakh can be invested in SCSS and earn 8.20 per cent interest income. Post Office Monthly Savings Scheme (POMIS) also offers a 7.40 per cent interest, and RBI Flexi bonds offer 8.05 per cent. So these are government-backed fixed instruments that still offer good interest rates."
Note that, small savings schemes rates are reviewed every quarter, and RBI floating rate bonds' interest rates which are linked to the National Savings Certificate (NSCs) rates are reset every six months. Also, these are fixed-tenure instruments and not very flexible. So, how to strike a balance between creating and maintaining balance in returns?
No risk, no gain understanding. As they say, to gain something, one should be willing to take risks. But risk is subjective. An investment could be highly risky for one investor and moderately risky for another. However, to sustain the inflation in the long run with the limited income, one may consider exploring different options and decide whether they suit one's risk tolerance or not, instead of not learning about them at all.
"If you want to only rely only on FDs, then you have to have way extra corpus which can withstand negative real return or else you have to have some allocation in other asset classes like equity and commodities" says Zende and suggests, "Apart from SCSS, POMIS, and RBI Flexi bonds; corporate FDs and AAA-rated corporate bonds can also be other options for regular income. In the equity asset class, one can go with balanced advantage or equity saving schemes to earn inflation-hedged returns. They can even hedge equity investments by investing some part in gold funds/ETFs and silver ETFs."
A diligent mix of instruments along with FDs can give a better shape to the portfolio, whether it's for a senior citizen or not.
Balancing is a continuous effort and cannot be emphasised enough in the context of financial planning. Having a constant cash flow and an emergency fund are the primary financial requirements in old age. So the strategy should be planned around ensuring these two needs.
According to Zende, "When the situation is grim and there is a reduction in investment income, one definitely has to have a close look at their cash flow statement. You have to see whether you spend more on needs or wants. Even for senior citizens, understanding of these concepts is important. They have to keep aside some money for their future medical expenses. First, focus on spending on essential heads like utility bills, medical expenses, doctor fees, etc, and they should plan their other expenses."
As high interest rates work in favour of depositors and lower rates for borrowers, seniors typically belong to the first category. And thus, they need to explore different investment options to balance their returns that can beat inflation.
