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Best Tax Saving FD Schemes of 2026
Saving taxes is a key motivator for disciplined savings among many investors. A tax-saver FD is a simple option that offers both safety and tax benefits. Offered by banks and other financial institutions, this fixed deposit scheme lets you claim tax benefits under Section 123 of the Income Tax Act, 2025 (replacing Section 80C of the Income Tax Act, 1961). It’s more appealing to many because of the lower risk it carries compared to options like mutual funds, making it a solid choice for those who prefer stability over high-risk returns.
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Best Tax Saving Fixed Deposit Schemes in 2026
Below are some of the top banks’ FD rates for tax savings:
| Tax–Saving FD | Interest Rates for Regular Citizens (in % p.a.) | Interest Rates for Senior Citizens (in % p.a.) |
| Public Sector Banks | ||
| State Bank of India (SBI Bank) | 6.05% | 7.05% |
| Punjab National Bank (PNB Bank) | 6.00% | 6.80% |
| Bank of Baroda | 6.30% | 6.90% |
| Canara Bank | 6.25% | 6.75% |
| Indian Bank | 6.00% | 6.50% |
| Private Sector Banks | ||
| Kotak Mahindra Bank | 6.25% | 6.75% |
| HDFC Bank | 6.15% | 6.65% |
| IDFC Bank | 6.00% | 6.25% |
| Axis Bank | 6.50% | 7.25% |
| YES Bank | ||
| Small Finance Banks (SFBs) | ||
| Suryoday Small Finance Bank | 7.25% - 7.90% | 7.40% - 8.05% |
| Equitas Small Finance Bank | 7.00% | 7.50% |
| AU Small Finance Bank | 6.75% | 7.25% |
| Utkarsh Small Finance Bank | 7.00% | 7.50% |
| Ujjivan Small Finance Bank | 7.20% | 7.70% |
Note: The rate of interest offered on tax-saver fixed deposits is subject to change and is valid as of July 2026.
Overview of Tax-Saving Fixed Deposit Schemes
A tax-saving FD scheme is an investment option that allows you to save on income tax while earning fixed returns. It involves investing a specific amount for a lock-in period of 5 years. The invested amount qualifies for a deduction of up to Rs. 1.5 lakhs under Section 123 of the Income Tax Act, 2025, which has now replaced Section 80C of the 1961 Act.
Earnings from tax-saving FD interest rates are taxable, but the invested principal amount is exempt from tax. This scheme provides a dual benefit of tax savings and a fixed return on investment. These benefits make it a popular and the best investment plan for risk-averse investors.
Key Features of Tax-Saving Fixed Deposits
- Competitive Rates: Enjoy attractive interest rates that help your investment grow steadily.
- Tax Benefits: Get tax deductions under Section 123 of the Income Tax Act, 2025, which has replaced Section 80C. (The ₹1.5 lakh deduction applies if you file under the Old Tax Regime, though the interest earned remains taxable)
- Fixed Investment Period: Lock in your funds for five years, ensuring stable and predictable returns.
- Flexible Interest Payouts: Choose between monthly, quarterly, or annual payouts based on your needs.
- Minimum Documentation: Quick and easy paperwork makes the investment process smooth.
- Online Management: Track and manage your FD conveniently through net banking or mobile apps.
Key Benefits of Investing in Tax-Saving Fixed Deposits
- Tax Savings: High fixed deposit rates provide an opportunity to earn attractive returns while enjoying tax benefits.
- Stability and Security: FDs are known for their stability and security. This makes them a reliable investment option. Your principal amount is safeguarded, and the interest earned adds to your overall returns.
- Fixed Returns: With fixed interest rates, you know exactly how much you will earn. This provides you with predictability and helps in financial planning.
- No Market Fluctuations: Unlike investments in the stock market, tax-saver FDs are not affected by market fluctuations. This makes them a safer option for you if you prefer a more conservative approach.
- Ease of Investment: Opening a tax-saving FD is a simple and hassle-free process, making it accessible for both seasoned investors and those new to financial planning.
- Diversification: Including tax-saving FDs in your investment portfolio provides diversification, reducing overall risk by balancing your investments across different asset classes.
Tax-Saving FD vs. Other Tax-Saving Investments
| Investment Option | Tax-Saving FD | ULIP (Unit Linked Insurance Plan) | PPF (Public Provident Fund) | SSY (Sukanya Samriddhi Yojana) | NSC (National Savings Certificate) | ELSS (Equity-Linked Savings Scheme) |
| Tax Benefit | On the invested amount under Section 80C | Tax-free maturity proceeds under Section 10(10D) | On the invested amount under Section 80C | Tax-free maturity and withdrawal under Section 10(14) | On the invested amount under Section 80C | On the invested amount under Section 80C |
| Lock-in Period | 5 years | 5 years | 15 years | 21 years or until the child gets married after the age of 18, whichever is earlier | 5 years | 3 years |
| Returns | 5% - 8% p.a. | 10 – 24% p.a. | 7.10% p.a. | 8.20% p.a. | 7.7% p.a. | 8% - 20% p.a. |
| Risk Level | Low, as it's a fixed deposit | Moderate to high due to market fluctuations | Low, as it's a government-backed scheme | Low to moderate, influenced by market conditions | Low, government-backed | High, as it depends on equity market performance |
| Liquidity | Limited access during the lock-in period | Partial withdrawals are allowed after the lock-in period | Limited access with partial withdrawals after the 7th year | Limited, withdrawals allowed after the 5th year | Limited access during the lock-in period | Generally, liquid after the lock-in period |
| Suitability | Conservative investors seeking fixed returns | Investors comfortable with market risks | Long-term investors looking for fixed returns | Parents saving for a child's education plan/marriage | Risk-averse investors seeking fixed returns | Investors with a higher risk tolerance seeking the potential for higher returns |
People Also Read: FD Calculator
Who Should Invest in a Tax-Saving FD?
Tax-Saving Fixed Deposits (FDs) are ideal for individuals looking to save on taxes while earning a fixed return on their investment. These FDs come with a lock-in period of 5 years, making them suitable for those with a long-term investment horizon. Investors can benefit from Tax-Saving FDs, as they offer a guaranteed interest rate with upfront tax deductions of up to ₹1.5 lakh per financial year under Section 123 of the Income Tax Act, 2025 (which has officially replaced Section 80C).
Documents Required to Invest in Tax-Saving FD Schemes
It is essential to provide the following documents while opening a Tax-Saving FD Account:
- PAN Card: Essential for all financial transactions, including tax-saving FD investments.
- Identity Proof: Valid government-issued IDs such as Aadhaar card, passport, or driver's license.
- Address Proof: Documents like utility bills, Aadhaar card, or passport to verify your residential address.
- Passport Size Photographs: Usually, a couple of recent passport-sized photos are required.
- Filled Application Form: Complete the application form provided by the bank or financial institution.
- KYC Compliance: Ensure that your Know Your Customer (KYC) details are up to date.
- Form 15G/15H (if applicable): For individuals seeking tax exemption on interest income.
- Cheque or Demand Draft: The initial investment amount needs to be provided through a cheque or demand draft.
Wrapping Up
Finding the best tax-saving FD isn't just about earning good interest. Getting guaranteed returns is great, but saving on tax is what really helps your money grow over time. When you choose a good tax-saving FD, you get stable FD interest rates along with tax benefits under Section 123. It's a smart option for people who want safe growth without worrying about market ups and downs. Since your money stays locked in for 5 years, it's a great way to save part of your income while keeping it protected and earning steadily.
FAQs
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Which FD is best for tax savings?
Here are 5 highly-rated tax-saving investment options to consider:- HDFC Bank Tax Saver FD
- ICICI Bank Tax Saver FD
- Axis Bank Tax Saver FD
- SBI Tax Saver FD
- Kotak Mahindra Bank Tax Saver FD
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Is a 5-year FD interest tax-free?
The interest earned on regular 5-year FDs is taxable as per your income tax bracket. The principal amount invested is eligible for an upfront tax deduction of up to ₹1.5 lakh per financial year. This benefit is governed under Section 123 (read with Schedule XV) of the Income Tax Act, 2025, which has officially replaced Section 80C. -
Is SBI FD tax-free?
Whether an SBI FD is tax-free depends on the type of FD:- Regular SBI FDs: The interest earned on regular SBI FDs is NOT tax-free. It is taxable as per your income tax bracket.
- SBI Tax Saving FD: SBI offers a specific type of FD called the SBI Tax Saving FD,
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16 Jul 2026
Form 121 allows eligible SBI Fixed Deposit holders to avoid TDS
10 Feb 2026
The fixed deposit interest rates in India are generally between˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
* Applicable for Titanium variant of Max Life Smart Fixed-return Digital (Premium payment of 5 years, Policy term of 10 years) and a healthy male of 18 years old paying Rs. 30,000/- monthly (exclusive of all applicable taxes)
** Fixed deposit rate applicable for 5 year's 1 day to
10 years for investment amount less< 2 Crore ( Not for senior citizens).
*** PPF interest rate applicable for 15 years
for investment amount upto 1.5 Lac
+ Trad plans with a premium above 5 lakhs
would be taxed as per applicable tax slabs post 31st march 2023
#Discount offered by insurance company
##The Guaranteed Returns are dependent on the policy term and premium term availed along with other variable factors. 7.4% rate of return is for an 18-year-old, healthy male for a policy term of 20 years and a premium term of 10 years with ₹5,00,000 annually installment premium. All plans listed here are from insurance companies’ funds.
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ