Senior citizens savings scheme (SCSS) is hugely popular begetting its holders quarterly interest at the guaranteed rate prevailing at the time of opening of the account. Thus, if you invested in SCSS in 2017 and the interest rate at that time was 8.40 percent per annum, you would've earned that rate till the end of the entire five-year tenure. If you opened the account in February 2021, you would have locked yourself into interest of 7.40 percent per annum for five years. If you are going to open your SCSS account in January-March 2023, you would lock yourself into interest of 8 percent per annum for five years. On maturity the accounts are extendable up to a maximum of another three years and the interest rate applicable would be the one prevailing on the date of maturity.
So, it is entirely your luck when you open the account. Those who opened their accounts during the corona period when the interest rate was slashed to 7.4 percent are condemned to 7.4 percent per annum for five years. They have to twiddle their thumbs and watch wistfully if not enviously with latecomers scoring over them.
Most of the senior citizens while opening the account, invest upfront the entire amount of Rs 15 lac, the cap set for each account. Perhaps they should stagger their investments so as to take advantage of the hike in interest rate but that is easier said than done because they would like to earn at least 7.4 percent as in the above example on Rs 15 lac they have earmarked for SCSS.
It is for the government to ponder if the senior citizens should stew in their own juice. Come to think of it, it is going to charge higher interest from borrowers while paying the fixed rate interest to SCSS account holders thus having best of both the worlds. In all fairness, elders during the autumn of their lives should not be given such an unfair treatment. One may argue that the government’s policy cuts both ways---you are protected when interest rates head South i.e., become less for the newcomers.
Why not then make it a flexi-rate interest regime? Alternatively, and more reasonably, why not give senior citizens the choice of plumping for fixed/guaranteed rate or flexi-rate that swings from quarter to quarter? Better still, why not give the senior citizen the right to split his deposits into fixed and flexi categories. To wit, if I invest Rs 15 lac today in SCSS, I should have the option to say that Rs 10 is earmarked for the fixed rate and Rs 5 lac for the flexi rate and vice-versa or in any other permutation and combination subject to the condition that the choice once made cannot be changed till maturity.
The short point is it is unfair to condemn a senior citizen to the rate that prevailed when he opened the account especially given the steep premature exit cost ranging from 1 percent to 1.5 percent of the deposit i.e., the principal amount would be returned subject to the above cost of premature closure.
What post office does is faithfully followed by banks so much so that your bank fixed deposits too are condemned to the same interest for its tenure even as interest rates keep fluctuating during that period. One may say that fixed/flexi combination would make the schemes that much more complicated but in this day and age with software being available for handling all complications it shouldn’t be a big deal or challenge for post office and banks to free depositors from the straightjacket of initial rate of interest continuing till maturity.
The burden of song of this article is this. Suppose I had locked myself into 7.4% interest in respect of my SCSS account with post office. Now the new rate is 8%. It is human nature to make a swift calculation which would show that I have lost 0.60% interest opportunity which translates into Rs 9000 pert annum. An option to split deposit between fixed and flexi rates would serve to remove the straightjacket and give a fairer deal.
—The author, S Murlidharan,
is a CA by qualification, and writes on economic issues, fiscal and commercial laws. The views expressed in the article are personal.
Read his previous articles here
(Edited by : C H Unnikrishnan)
First Published: Jan 17, 2023 11:13 AM IST
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