The Senior Citizens Saving Scheme (SCSS) is a good investment for people aged 60 years and above. Most investors, however, want to keep the SCSS till maturity because it will fetch better returns; in certain cases, they have to close it prematurely. Know-your rules, penalty and interest implications of closing your SCSS prematurely. This will help you to weigh your options carefully.
When can you Close an SCSS Account Prematurely
The SCSS account has a five-year lock-in period; however, premature closure is permissible by the government only after the expiry of at least one year from the date of opening of the account. When individuals face a cash crunch or find a better investment avenue for their cash, they are allowed to close the account prematurely with certain deductions.
Penalties for Premature Closure
Close this withdrawal penalty according to the duration of time since the account opening. If the account is closed before two years, the penalty will be 1.5% of the deposit amount. If the account is closed after two years but before maturity, the penalty is 1%. The deduction will be made from the principal amount and not from the accumulated interest.
Earning Interest
An important factor to keep in mind here is the effect on earnings from interest income. If the account is closed before its completion of a year, no interest is payable. If closed after one year, the interest is calculated on actual duration the money had stayed in the account and the rate applicable for the period. When applicable, a recovery or set off may take place on the interest amount which was paid earlier.
Closing Procedure
For prematurely closing the SCSS account, the account holder has to submit a written application to the bank/post office where the account was opened. Other documents required may be the passbook, an ID proof, and a canceled cheque. After the successful processing of the closure, the remaining amount will be credited into the linked savings account.
Make an Informed Exit
While the SCSS gives good interest to senior citizens for keeping their money, there can be some bad days when a withdrawal before maturity becomes necessary. These penalties and interest adjustments have to be seen and understood by investors so they may be able to take well-informed financial decisions without being taken for losses.