Tax-saving fixed deposits (FDs) are great low-risk investment instruments that generate assured returns and are usually extremely easy to open and operate. However, investors must realize that they are different from regular FDs in several ways.
Investors can choose tax-saving fixed deposits over other instruments for the purpose of tax savings under Section 80C of the Income Tax Act of 1961 and for guaranteed returns.
In a financial year, one can claim tax benefits up to a limit of Rs 1.5 lakh by investing in tax-saving FD schemes of banks or NBFCs. It’s worth noting that tax-saving FDs vary from regular FDs in a number of ways.
Also, tax-saving FDs can be opened in “single” or “joint” mode and an adult can open such an FD jointly with a minor. However, in the case of joint holding, the tax-deduction benefits can be claimed only by the first holder. A nomination facility is also available for tax-saving FDs.
Let’s take a look at it first:
Advantages and disadvantages of tax-saving fixed deposits
Top 10 Tax-Saving FDs with higher returns
10 Banks Currently Offering Highest Interest Rates on Tax-Saving FDs (non-senior citizen depositors)
|Banks||Regular FD Rates||Senior Citizen FD Rates||W.e.f.|
|Suryoday Small Finance Bank||7.25%||7.75%||15-Feb-21|
|Utkarsh Small Finance Bank||6.75%||7.25%||19-Oct-20|
|Ujjivan Small Finance Bank||6.75%||7.25%||5-Mar-21|
|AU Small Finance Bank||6.50%||7.00%||1-Apr-21|
|Jana Small Finance Bank||6.50%||7.00%||7-May-21|
|Equitas Small Finance Bank||6.40%||6.80%||25-Jan-21|
Source: Official Bank Websites
Fixed deposit (FD) has proven to be a great way to invest because they are not subject to market fluctuations and offer a guaranteed interest rate at maturity. Due to its tax benefits and decent interest rate, tax-saving FD accounts are the most preferred choice among risk-averse investors.
As previously stated, such deposits are eligible for a tax deduction under section 80C of the Income Tax Act of 1961, 5-year tax-saving FDs are classified as a medium-term investment option. As a result, if you have a financial goal that you want to achieve between a period of 3 years but less than 8 years then tax-saving FDs can be a good bet here.
And also tax-saving FDs are also insured up to Rs 5 lakhs (for both principal amount and interest) by DICGC. As a result, all the above-listed banks are covered under DICGC, and investing in a tax-saving FD scheme of any of the above-discussed banks can be a smart decision which not only gives you higher returns along with tax benefits but also enables the safety of your capital which always comes first above the interest rates.