Typically smaller banks offer higher rates than well-established banks
In these uncertain times when volatility rules equity and debt markets, a bank fixed deposit offers some solace. Those in the lower tax brackets find bank FDs attractive as the chances of losing their principal are negligible.
Among various tenures of deposits that banks offer is the five-year tax-saving FD. This FD offers income tax deduction under Section 80C for up to Rs 1.5 lakh. There are other instruments that qualify for Section 80C tax deduction too, such as tax-saving equity funds and public provident fund (PPF). But while equity funds belong to the equity asset class, PPF is 15-year debt instrument.
Even though bank FD rates have fallen to low levels, there are some banks that offer you reasonably high rates. At the top is DCB Bank with a five-year bank FD rate of 6.95 percent, as on October 14 data compiled by BankBazaar. The highest rate offered by a public-sector bank on a 5-year tax-saving FD is State Bank of India that offers 5.40 per cent. If you invest Rs 1.5 lakh in the SBI five-year tax saving FD, you get Rs 1.96 lakh after five years.
Two small finance banks – AU Small Finance Bank and Ujjivan Small Finance Bank – round up the top 10 highest rates.
Smaller 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 vintage.
A note about the tableBankBazaar 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.