Tax-saving FDs have a lock-in period of five years and premature withdrawals are not allowed
Investors prefer FDs (fixed deposits) as returns are certain. Certain conservative investors prefer tax-saving FDs for taking the section 80C deduction benefit. Investments up to Rs 1.5 lakh can be claimed for deduction under section 80C of the income tax act. Tax-saving FDs have a lock-in period of five years and premature withdrawals are not allowed.
In these uncertain COVID-19 times, investors are moving away from market-linked investments to safer options such as bank FDs to preserve their capital, despite the steady decline in interest rates over the last one year.
Data as on respective banks' website on September 9 2020. Interest rate of all listed (BSE) public & private banks and foreign banks considered for data compilation. Banks for which verifiable data is not available are not considered. The table includes only tax-saving FDs (for non-senior citizens) of a five-Year tenure. For all FDs, quarterly compounding is assumed.
Smaller private banks offer higher interest
Smaller private banks offer interest rates of up to 6.95 per cent on tax-saving FDs, according to data compiled by BankBazaar. These interest rates on tax-saving FDs are higher compared to leading public sector banks.
DCB Bank tops the chart with 6.95 per cent interest, followed by private banks such as IDFC First Bank, IndusInd Bank, Yes Bank and RBL Bank offering 6.5-6.75 per cent interest on five years tax-saving FDs.
Private Banks such as Axis Bank, ICICI Bank and HDFC Bank offer 5.50 per cent, 5.35 per cent and 5.30 per cent interest respectively on tax-saving FDs.
Among public sector banks, Punjab and Sind Bank tops the chart with 5.55 per cent interest, followed by the State Bank of India and Bank of Baroda offering 5.40 per cent and 5.30 per cent respectively on tax-saving FDs.
Investments in fixed deposits of up to Rs 5 lakh are guaranteed by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI.A sum of Rs 1.5 lakh invested in DCB Bank and Punjab and Sind Bank tax-saving FDs grows to Rs 2.11 lakh and 1.97 lakh, respectively, after five years.