5 disadvantages of investing in SCSS: Senior Citizen Savings Scheme (SCSS) is a government-backed savings scheme in India for senior citizens. Any individual above the age of 60 can invest in this scheme, and earn a higher interest rate than bank fixed deposits (FDs). While there are several advantages of investing in SCSS, senior citizens should also know the disadvantages before investing in this scheme.
Senior Citizen Savings Scheme (SCSS) latest interest rates
Banks and post offices offer an interest rate of 8.2% on the Senior Citizens’ Savings Scheme (SCSS). The govt had hiked the interest rate for the April-June quarter from 8 per cent to 8.2 per cent. Once the investment is done the interest rate remains the same throughout the tenure.
Senior Citizen Savings Scheme (SCSS) investment limit
Senior citizens can invest up to ₹30 lakh in this scheme from April 1, up from ₹15 lakh before, as stated by Finance Minister Nirmala Sitharaman in her Budget 2023 presentation.
Vinit Khandare, CEO and Founder, MyFundBazaar listed out 5 disadvantages of investing in SCSS
1) TDS on SCSS interest
The interest from SCSS deposits becomes taxable if it surpasses the ₹50,000 cap in a financial year, unlike PPF schemes where everything is tax-free.
2) Fixed Interest Rate
While the SCSS account has become a very appealing investment choice for senior citizens due to the current interest rate of 8.2%, individuals who created the account earlier at a lesser rate are at a disadvantage. They might close their previous SCSS account and start a new one to take advantage of the present high rate. However, there are fees associated with prematurely canceling an SCSS account.
3) No interest on unclaimed interest income
Each quarter, owners of SCSS accounts must report their interest earnings. You won’t receive any further interest on the money if you don’t claim the interest that is due each quarter.
4) Limited Age Bracket
Only seniors over 60 years old are eligible to open a SCSS account. Employees in the private sector who desire to retire early cannot take advantage of the programme.
5) Fixed Tenure
Investments made in SCSS accounts have a 5-year lock-in period. An additional three years can be added to the extension. Some depositors may find it challenging to develop plans based on their goals or for those who may desire to invest simply for a couple of years due to the lock-in term. Due to the lock-in period and the specific penalty for premature withdrawal, certain investors may potentially experience a liquidity crisis.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.