New bonus interest scheme for seniors: Timely or populist?

The Government has launched a special interest scheme for senior citizens (60 years and above) with effect from 1 July as part of the 2025 Budget proposals. The program would enable individuals who are 60 years and above to obtain an additional 3% interest rate on fixed deposits opened at the 17 participating licensed banks from 1 July to 31 December. 

The deposit amount is capped at Rs. 1 million per depositor, regardless of the number of participating banks and customers are required to provide a declaration confirming that the funds deposited are their own apart from claiming their monthly income is less than Rs. 150,000.

At the height of the economic crisis in 2022, when the inflation was hovering at around 60% to 70%, the Central Bank (CB) took steps to aggressively hike the policy rates to contain inflation. As a result, both the lending rates and deposit rates increased considerably, enabling the Monetary Authority to bring down inflation. The Bank’s strategy paid off, and the island even experienced deflation for seven consecutive months recently – from September 2024 to March 2025. With the inflation easing, the CB is currently maintaining a low-interest rate regime, which has brought down the rates of savings accounts and fixed deposits. This development has angered senior citizens, particularly retired individuals who expect high interest rates for their savings to meet living expenses. Numerous Facebook groups have been formed by the affected individuals to vent their disappointment and demand from the Government to look into their grievance.

While in the Opposition, the NPP, especially Sunil Handunneththi, did their best to gain political mileage from both scenarios of the monetary policy. When interest rates skyrocketed, the likes of Handunneththi shed tears about the predicament of SMEs/entrepreneurs and borrowers in general who had to experience high finance costs. Thereafter, as interest rates began to move downwards, those who sympathised with borrowers earlier, spoke about the difficulties pensioners and fixed income earners were facing due to falling rates. In fact, the NPP in its 2024 Presidential election manifesto pledged to offer an interest rate which is 5% higher than the normal bank rate(s) for senior citizens’ fixed deposits. 

Unlike two to three years ago, the prices of essential medicine, which represent a sizeable segment of the consumption expenditure of elders, have come down due to the appreciation of the local currency. There are more than 700,000 public sector pensioners in the country, and is it justifiable to grant them further benefits from the money of taxpayers? Moreover, the scheme excludes individuals who turn 60 after 31 December, raising concerns about fairness and inclusivity.

This is not the first time a scheme of this nature has been introduced. In 2015, the Yahapalana Government launched a similar initiative which guaranteed a 15% interest rate for seniors. That program was poorly designed, and even dual-citizen millionaires exploited it to secure unjustifiable financial benefits. Just last week, it was reported in the media that the IMF had censured the 2015 scheme as it was associated with abuse as well as massive cost overruns. The program also proved to be a huge fiscal obstacle to the Government and it was reported the Treasury owed Rs. 108 billion to the banking sector in respect of the interest subsidy related to the highly criticised program. By contrast, the newly launched program appears to be more methodical as benefits are intended to be provided only to people whose monthly declared income is less than Rs. 150,000.

Time and again, financial assistance programs in Sri Lanka have failed to achieve the desired results due to poor targeting and design. Instead of politically expedient measures, targeted support mechanisms such as means-tested transfers or elderly healthcare subsidies may offer a more equitable and fiscally sustainable path.