It’s the last month of the financial year to make tax-saving investments for the year 2020-21. Investment decisions should be taken wisely, considering your financial goals. Avoid a last minute rush, plan for your tax-saving on priority.
The SENSEX is volatile at 50,000 and valuations seem stretched. So, lump-sum investments in equity linked savings scheme (ELSS) for tax-saving seem a tad risky. An investment in five-year tax-saving fixed deposits (FDs) offers reasonable returns to investors in this scenario. Also, investors prefer FDs, as returns are certain. Those in the lower tax brackets find bank FDs more attractive.
By investing in these FDs you can take the section 80C tax deduction benefit. Investments up to Rs 1.5 lakh can be claimed for tax 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.
Even though bank FD rates have fallen to low levels, there are some banks that offer you attractive interest rates.
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Higher interest rates offered by smaller private banks
Smaller private banks offer interest rates of up to 6.75 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 and Yes Bank tops the chart with 6.75 per cent interest, followed by IndusInd Bank offering 6.50 per cent interest on five years tax-saving FDs.
AU Small Finance Bank and Ujjivan Small Finance Bank offer 6.50 per cent and 5.80 per cent interest respectively on tax-saving FDs. The interest rates offered by small finance banks are higher compared to leading private banks. The foreign banks such as DBS Bank and Deutsche Bank offer 5.50 per cent and 6 per cent interest respectively on 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.
The highest rate offered by a public-sector bank on a 5-year tax-saving FD is Union Bank of India that offers 5.55 per cent interest, followed by Canara Bank and State Bank of India (SBI) offering 5.50 per cent and 5.40 per cent interest on tax savings FDs respectively. Bank of Baroda is offering 5.25 per cent interest on tax-saving FDs.
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Smaller private banks that have a low customer base typically offer higher rates to attract customers and depositors. That’s why government-owned banks offer lower rates. Just because a bank is offering you a high rate, doesn’t mean you should necessarily invest in it. Go for higher rates, but also go for reasonably larger banks with a strong management and financials.
Also read: IDBI Bank, Canara Bank and Bank of Baroda offer the best rates on savings accounts
A note about the table
Data compiled as on March 3, 2021 from respective banks' website. BankBazaar has accounted for FDs belonging to only those foreign, private, small and public sector banks that are listed on the stock exchanges. Banks, for which data is not available on their respective websites, were dropped. These rates are only of tax-saving five-year FDs for non-senior citizens.