A Tax Saving Fixed Deposit is a financial instrument designed to help you save on income tax while earning fixed returns on your investment. This type of fixed deposit (FD) comes with a lock-in period of 5 years and offers tax benefits under Section 80C of the Income Tax Act 1961. A tax saving FD is an ideal investment for risk-averse investors who seek a combination of stable returns and tax advantages. This article will help you to understand these FD schemes in detail.
7.5%*
Guaranteed Plan
(by insurance companies)
(10 Years)
6.5%**
Fixed Deposits
(by SBI bank)
(5-10 Years)
7.1%***
Public Provident Fund
(other popular options)
(15 Years)
A Tax Saving Fixed Deposit, also known as Tax Saving FD, is a type of fixed deposit that allows you to claim a tax deduction of up to Rs. 1.5 lakhs per annum under Section 80C of the Income Tax Act, 1961. The tenure of these tax-saving financial investments is 5 years, and the interest earned is taxable. The tax-saving FD interest rates generally range between 6% - 8.25% p.a. for regular citizens and between 6.50% - 8.75% p.a. for senior citizens.
Latest RBI Update:
The RBI has introduced a new rule for unclaimed matured fixed deposit accounts.Â
Under this rule, the funds in such accounts will earn interest as per the lower of the following interest rates:
Rates of savings accounts
The contracted interest rate of the matured fixed deposit
The key features of a tax-saving fixed deposit are listed in the table below:
Particular | Details |
Investment Tenure | 5 years |
Lock-in Period | 5 years |
Purpose | Save on income tax |
Maximum Investment | Up to Rs. 1.5 lakhs |
Interest Rates | Fixed, determined at the time of investment |
Premature Withdrawal | Not allowed |
Tax Benefits | Tax deductions on investment amount under Section 80C |
Tax on Interest Earned | Taxable |
Financial Institution | Offered by banks and financial institutions |
Risk | Considered a low-risk investment option |
A tax saving FD offers you various benefits, some of which are mentioned in the list below:
Guaranteed Returns: Tax-saving FDs offer assured returns on your investment.
Tax Benefits: You can claim deductions under Section 80C of the Income Tax Act for your investments in tax-saving fixed deposits.
Fixed Lock-in Period: Your funds in a tax-saving fixed deposit are locked for a specific period. This helps to promote disciplined savings.
Capital Protection: The principal amount invested in the tax saving FD is secure, which ensures capital protection.
No Market Fluctuations: Unlike market-linked investments, the tax-saving Fixed Deposit returns remain unaffected by market volatility.
Easy to Understand: This simple investment option is suitable for those seeking stability and tax savings.
Cumulative and Non-Cumulative Options: You can choose between cumulative interest or regular payouts.
Accessibility: Tax saving FDs are offered by various banks and financial institutions, making them easily accessible.
Ideal for Risk-Averse Investors: The tax-saving FDs are suited for individuals preferring low-risk investments with tax advantages.
People Also Read: Which Bank has the Highest Interest Rate for Fixed Deposits?
Here is a comparison table for Tax-saving Fixed Deposit (FD) with other tax saving investments, like Unit Linked Insurance Plan (ULIP), Mutual Funds, Equity Linked Savings Scheme (ELSS), and National Pension Scheme (NPS).
Criteria | Tax-Saving FD | ULIP | Mutual Funds | ELSS | NPS |
Lock-in Period | 5 years | 5 years | 3 years | 3 years | Till retirement or 60 years (whichever is earlier) |
Risk Level | Low | Variable (depends on fund choice) | Variable (depends on fund choice) | Moderate to High | Moderate |
Return Potential | Generally lower compared to market-linked options | Variable (depends on fund performance) | Variable (depends on fund performance) | Generally higher due to equity exposure | Variable (depends on fund choice) |
Taxation on Returns | Taxable | Tax-free under Section 10(10D) | Taxable | Taxable | Taxable |
Tax Benefit on Investment | Qualifies for deduction under Section 80C | Qualifies for deduction under Section 80C and 10(10D0 | Qualifies for deduction under Section 80C | Qualifies for deduction under Section 80C | Qualifies for deduction under Section 80CCD(1) |
Risk Appetite | Low | Moderate to High | Moderate to High | High | Moderate |
Liquidity | Generally low due to the lock-in period | Partial withdrawals are allowed after the lock-in period | Redemption is possible after the lock-in period | Redemption is possible after the lock-in period | Partial withdrawals are allowed under certain conditions |
Flexibility | Limited flexibility in terms of withdrawal and premature closure | Flexibility in choosing investment funds | Flexibility in choosing funds | Flexibility in choosing funds | Limited flexibility, subject to certain conditions |
Payouts | Fixed interest rate | Variable, based on fund performance | Variable, based on fund performance | Variable, based on market conditions | Annuity payments after retirement |
Purpose | Conservative investors looking for fixed returns | Investors seeking a mix of insurance and investment | Investors looking for market exposure with potential tax savings | Investors seeking tax-saving with higher equity exposure | Retirement planning with tax benefits |
Tax-Saving Fixed Deposit is a beneficial investment option for you to optimize your tax liabilities while securing your financial future. With the dual advantage of tax deductions under Section 80C and the stability of fixed returns, this best investment plan provides a reliable option for conservative investors looking to balance tax efficiency with capital preservation. Choosing a Tax-Saving Fixed Deposit can be a prudent step toward achieving both financial security and tax optimization.Â
Allahabad Bank FD Interest Rates
Andhra Bank FD Interest Rates
Assam Gramin Vikash Bank FD Interest Rates
AU Small Finance Bank FD Interest Rates
Axis Bank FD Rates
Bajaj Finance FD Interest Rates
Bandhan Bank FD Interest Rates
Bangiya Gramin Vikash Bank FD Interest Rates
Here are some of the best tax-saving FDs in India as of November 2023:
Bank | Interest rate for regular citizens | Interest rate for senior citizens |
HDFC Bank FD Rates | 7.00% p.a. | 7.50% p.a. |
Canara Bank FD Rates | 7.00% p.a. | 7.50% p.a. |
Axis Bank FD Interest Rates | 7.00% p.a. | 7.75% p.a. |
BoB FD Interest Rates | 6.50% p.a. | 7.15% p.a. |
DCB Bank FD Rates | 7.60% p.a. | 8.10% p.a. |
Unit Linked Insurance Plan (ULIP)
Public Provident Fund (PPF)
Sukanya Samriddhi Yojana (SSY)
National Pension System (NPS)