Annuity Deposit Scheme Interest Rates, Annuity deposit plans have grown in popularity as an investment option for people looking for a steady income, particularly seniors and retirees. The interest rate is one of the most important considerations for investors when choosing these plans. Everything you need to know about Annuity Deposit Scheme Interest Rates, including how they operate, what influences them, and how to pick the best option for you, will be covered in this book.
Contents
What Is an Annuity Deposit Scheme?
An Annuity Deposit Scheme is a type of fixed deposit where the depositor makes a lump sum payment, and the bank returns this amount in monthly instalments consisting of both principal and interest over a fixed period. Unlike regular fixed deposits, where you receive interest periodically and principal at maturity, in annuity schemes, your entire amount is broken down into monthly payouts. These are best suited for:
- Retired individuals
- People looking for a fixed monthly income
- Low-risk investors
How Do Annuity Deposit Schemes Work?
Here’s a step-by-step breakdown:
- Initial Deposit: You deposit a lump sum amount.
- Monthly Instalments: The bank calculates the monthly instalment using the principal and applicable interest.
- Tenure Options: You can choose from various tenures like 3, 5, 7, or 10 years.
- Interest Component: The interest is calculated on the reducing balance every month.
- Maturity: There’s no final lump sum maturity amount as the full amount is paid back monthly.
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Importance of Interest Rates in Annuity Deposit Schemes
The interest rate is the most crucial factor in determining:
- The amount you receive every month
- The total return on your investment
- Tax implications and net returns
Higher interest rates mean higher monthly payouts. That’s why it’s important to compare rates across banks before investing.
Current Interest Rates on Annuity Deposit Schemes (2025)
Interest rates can vary depending on:
- The bank you choose
- The investment tenure
- Whether you’re a senior citizen
Example Interest Rates from Major Banks (As of 2025)
| Bank Name | Tenure Options | Regular Rate (%) | Senior Citizen Rate (%) |
| SBI | 3 to 10 years | 6.60% | 7.10% |
| HDFC Bank | 5, 7, 10 years | 6.50% | 7.00% |
| ICICI Bank | 3 to 10 years | 6.70% | 7.20% |
| Bank of Baroda | 5, 7 years | 6.75% | 7.25% |
| Axis Bank | 5, 10 years | 6.60% | 7.10% |
| Punjab National Bank | 3 to 10 years | 6.55% | 7.05% |
Note: These are indicative rates and may change. Always check the official bank website before investing.
How Is the Interest Rate Calculated?
In Annuity Deposit Schemes, the interest is calculated based on:
- Monthly reducing balance
- Applicable fixed deposit rate
- Tenure chosen
The instalment includes a portion of principal and interest on the remaining principal. Over time, the interest component reduces, and the principal portion increases.
Illustration: Annuity Interest Calculation Example
Let’s say you invest ₹10,00,000 for 5 years at 7% interest.
Monthly payout: ₹19,801 (approx)
- In the beginning, you receive more interest and less principal.
- By the end, you receive mostly principal.
This method ensures you receive steady income while your capital is slowly returned over the tenure.
Special Interest Rates for Senior Citizens
Most banks offer 0.25% to 0.75% extra interest for senior citizens on annuity schemes.
Benefits:
- Higher monthly payouts
- More secure retirement planning
- Lower-risk alternative to market investments
Some banks also offer exclusive schemes like:
- SBI Annuity Scheme for Senior Citizens
- HDFC Senior Citizens Care FD
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Eligibility Criteria for Annuity Deposit Schemes
Anyone can open an annuity deposit account, subject to:
- Minimum deposit amount (varies per bank; usually ₹25,000 or ₹1 lakh)
- Valid KYC documents
- Resident Indian status (in most cases)
- Joint account option available
Features of Annuity Deposit Schemes
Here are the standard features across most banks:
| Feature | Details |
| Deposit Type | One-time lump sum |
| Tenure | 3 to 10 years |
| Interest Payment | Monthly with principal |
| Withdrawal | No premature withdrawal allowed (exceptions for death or critical illness) |
| Nomination Facility | Available |
| Loan Against Deposit | Usually not available |
| Tax Deducted at Source | TDS is applicable as per the IT Act |
Factors Affecting Interest Rates
Several factors determine the annuity deposit interest rate:
- RBI Policy Rates: Changes in repo rate impact deposit rates.
- Bank’s Internal Liquidity Needs
- Deposit Tenure
- Market Conditions
- Customer Segment: Senior citizens may get higher rates.
Annuity Deposit Scheme vs Monthly Income Scheme (MIS)
| Parameter | Annuity Deposit Scheme | Monthly Income Scheme (MIS) |
| Payout Includes | Interest + Principal | Only Interest |
| Principal Returned | Monthly in parts | In full at maturity |
| Flexibility | Less (no early exit) | Moderate |
| Suitable For | Retirees, regular income seekers | Risk-averse investors |
Tax Implications
- Interest earned is fully taxable under “Income from Other Sources”.
- TDS is applicable if interest exceeds ₹40,000 (₹50,000 for senior citizens) per year.
- No tax exemption like PPF or SCSS.
Tip: Submit Form 15G/15h (if eligible) to avoid TDS deduction.
How to Apply for an Annuity Deposit Scheme
You can apply through:
Offline
- Visit the nearest branch of the bank.
- Submit KYC and deposit a check/DD.
- Fill out the annuity FD form.
Online
Some banks allow you to open annuity FDS via internet banking or a mobile app.
Documents Required
- PAN Card
- Aadhaar Card
- Passport-sized photos
- Senior citizen ID (if applicable)
Tips for Choosing the Best Annuity Deposit Scheme
- Compare Interest Rates across banks.
- Choose Longer Tenures if you want a steady income.
- Check the TDS Rules before investing.
- Avoid breaking the FD, as premature closure is not allowed.
- Prefer Reputed Banks with high credit ratings.
Customer Support and Help
If you’re unsure which scheme to choose, you can:
- Visit the bank’s official website
- Call the customer care helpline
- Use the bank’s FD calculator tools online
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Conclusion: Is an Annuity Deposit Scheme Right for You?
For anyone looking for a steady and secure source of income, annuity deposit plans are great. These schemes are best suited for cautious investors, homemakers, and retirees due to their consistent interest rates, monthly payouts, and low risk. Before investing, it’s crucial to take the interest rate, potential tax consequences, and lock-in limitations into account. Always choose the senior citizen variation if you’re an elderly person to benefit from bigger returns.
Faq’s
Q. Is it possible to take my annuity deposit out before it matures?
Ans: No, except in cases of death or serious medical problems, early removal is prohibited.
Q. Do interest rates fluctuate or are they set?
Ans: At the moment of deposit, interest rates are set and stay that way for the duration of the chosen term.
Q. Does interest get paid every month?
Ans: Yes, in addition to a portion of the main.
Q. Is it possible to invest online?
Ans: Yes, a lot of banks have online investment choices, including SBI, HDFC, and ICICI.
Q. Are interest rates higher for senior citizens?
Ans: Yes, usually between 0.25% and 0.75% more.
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