Tax Saving FD Interest Rates 2024

As the name suggests, tax savings FDs are fixed deposit schemes that allow you to save on taxes. As per Income Tax rules, investments up to ₹1.5 lakhs to this scheme are tax-deductible under Section 80C of the Income Tax Act, 1961.

At the core, a tax saving and a regular FD are similar. For instance, both allow you to invest for a fixed tenure at fixed interest rates, and the returns come from the interest income. The main difference here lies in the tax benefits offered by each. While the standard FD scheme does not provide tax benefits, it gives investors a choice to pick a tenure between six months to ten years. On the other hand, a tax-saving FD, despite its tax-saving advantages, comes with a lock-in period of five years.

Nevertheless, the interest income in both these instances is taxable in your hands. So, before you decide which one to pick, it is crucial to understand tax-saving FD interest rates in 2024.

What are Tax Saving FDs?

Regular Fixed Deposit – FD is a savings scheme offered by banks, post offices and NBFCs where your money is held for a fixed tenure, earning interest at a fixed interest rate throughout the term. The lock-in period of a standard FD is the same as the deposit tenure, meaning that you cannot withdraw before maturity and for premature withdrawal penalty is levied  

Tax Saving FD – You cannot claim tax deductions on your investments in regular FDs. However, in the case of tax-saving FDs, investments up to ₹1.5 lakh benefits are tax-deductible under section 80C of the Income Tax Act, 1961. This marks the main difference between a standard and a tax-saving FD scheme. There are other differences too. Let us have a look.

To qualify for tax benefits, you must invest between ₹1 lakh and ₹1.5 lakh for a fixed five-year period. In contrast, the minimum investment amount for a regular FD varies across financial institutions. For instance, SBI allows you to open an FD with a deposit as low as ₹1000. Conversely, you need to invest a minimum of ₹5000 to have an FD account with Axis Bank.

A standard FD offers better liquidity than a tax-saving FD, but the latter comes with substantial tax benefits. So, both have their merits and demerits and whether you want to opt for a tax-saver FD depends on your investment goals and financial needs. With this in mind, let us explore the tax-saving FD interest rates, their features, eligibility criteria and more.

Also Read: Experience financial growth with unmatched Bajaj Finance FD Rates

Top 10 Tax-Saving Fixed Deposit Schemes in India

Below are some top tax-saving FD rates offered by banks. These rates are updated as of September 20, 2022.

Eligibility Criteria for Tax Saving Fixed Deposit

Indian citizens above the age of 18 years and the Hindu undivided families (HUFs) are eligible to invest in a tax-saving FD. Further, these accounts can also be opened by an individual jointly with their minor ward.

Also Read: Tax-Saver FDs in India: Get Tax Deductions Under Section 80C

Documents Required for Opening Tax Saving FD Account

Below is a list of documents required to open a tax-saving FD:

• Valid ID proof like Aadhar card, PAN card, voter ID card, passport etc.
• Valid address proof like Aaddhar card, voter ID card, passport, utility bills etc.
• Two passport-sized photographs.
• A duly-filled account opening form.

Know 5 important things about 5-year tax saving FD interest rates

1. Lock-in Period

These FDs come with a lock-in period of five years. As with a regular FD, the interest rate on five-year tax saving FD remains unchanged for the entire tenure. However, premature withdrawal is not allowed. So, funds cannot be liquidated, and your money remains invested in the scheme for the complete tenure.

2. Interest Rates

Tax-saving FDs offer interest rates similar to regular FDs, with higher rates for senior citizens.

3. Tax Exemption

You can claim tax deductions on investments up to Rs.1.5 lakh to this scheme. However, the interest income will remain taxable per your tax bracket.

4. Loan Facility

The loan facility is not available under tax-saving FDs. Hence, unlike a standard FD that can be used as collateral to secure loans, these FDs do not offer such benefits.

5. Auto-renewal

The deposits in these accounts cannot be auto-renewed upon maturity.

Also Read: FD Interest Rates: All You Need to Know

Tax Deductions For Reinvestment Fixed Deposits

Under the tax-saving FD, you can choose interest payout terms at your convenience. These FDs come in two primary forms – cumulative and non-cumulative. In the cumulative tax-saving FD, the interest income is compounded periodically and reinvested into the corpus. Compounding ensures that you earn interest on the interest. The principal, along with interest, is paid to you on maturity. In non-cumulative FDs, on the other hand, you receive interest payouts periodically, either annually, bi-annually, quarterly or monthly.

In this case, cumulative FD qualifies as a reinvestment fixed deposit. Investments of up to ₹1.5 lakhs in this scheme are eligible for tax deductions under section 80C of the IT Act of 1961.

Final Thoughts 

Tax-saving FDs are ideal when it comes to appreciating your capital and while you are at it, save some tax as well. What helps here is the fact that five-year tax-saving FD interest rates are similar to regular FD interest rates. However, not everything about these FDs is appealing. For example, if you want to liquidate the FD funds for an emergency or use it as collateral for a loan, then the tax-saving deposit will not help. On the other hand, if you invest to save taxes, these FDs are an excellent choice. So, assess your goals and cash-flow requirement

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