Investing in fixed deposits that are tax-saving, allows you to take the section 80C tax deduction benefit. Investments up to Rs 1,50,000 can be claimed for tax deduction under section 80C. Tax-saving fixed deposits have a lock-in period of 5 years and early withdrawals are not allowed. The share market is at an all-time high and valuations seem stretched. Though interest rates are low, some banks offer attractive tax-saving fixed deposits. Also, investors always prefer fixed deposits as returns are certain and the ones in the lower tax brackets find bank fixed deposits particularly attractive as the interest is fully taxable.
Smaller private banks offer interest rates of up to 6.95% on tax-saving fixed deposits, according to data gathered by BankBazaar. These interest rates on tax-saving fixed deposits are higher compared to leading public sector banks. Development credit bank tops the chart with 6.95% interest, followed by private banks such as IndusInd Bank and Yes Bank offering 6.75% interest on 5 years tax-saving fixed deposits. AU Small Finance Bank and Ujjivan Small Finance Bank offer 6.50 % and 5.80 % interest respectively on tax-saving fixed deposits. The rates offered by small finance banks are higher compared to leading private sector banks. Private sector banks such as Axis Bank, ICICI Bank, and HDFC Bank offer 5.50%, 5.35 %, and 5.30 % interest respectively on tax-saving fixed deposits.
The highest rate offered by a public-sector bank on five-year tax-saving fixed deposits is Union Bank of India that offers 5.55 % interest, followed by Canara Bank and State Bank of India offering 5.50 % and 5.40% interest on tax savings fixed deposits respectively. Bank of Baroda is offering 5.25% interest on tax-saving fixed deposits. A sum of Rs 1,50,000 invested in DCB Bank and Union Bank of India tax-saving fixed deposits grows to Rs 2,12,000 and 1,98,000 respectively, after 5 years.
Smaller private banks that have a less customer base typically offer higher interest rates to attract customers and depositors. That’s why government-owned banks offer lower rates. Always ideal to go for higher rates, but also go for reasonably larger banks with strong management and financials.
