Interest rates on government bank deposits have fallen and it is extremely difficult to get decent interest rates. The Reserve Bank of India has cut interest rates and so have banks. Banks like State Bank of India today offer very low interest rates on deposits.
We have now selected a list of government banks that offer you the best interest rates on domestic deposits in 2017. Invest in them for 3-5 years to lock money at higher interest rates.
Union Bank by far offers you the best interest rate when it comes to government banks in India. This large public sector bank offers you an interest rate of 6.8 per cent on a 1-3 year deposit. While for FD tenure between 10 months -14 months, the interest rate is kept at 7%. FDs for all other time frames fetch a lower rate of return.
It is very difficult for most of the other government banks to match the deposit interest rates of Union Bank of India. Canara bank for its fd with a tenure of 1 year offers interest rate of 6.75%. For all other time frames, the returns are lower between 5.75-6.65%.
Oriental Bank of Commerce
This is one of the few government owned banks that offers an interest rate of 7 per cent for FD tenure of 1 to 2 year. For all other time frames, the bank offers an interest in the range of 6.5% to 6.75%. So, if you are looking to place money, we suggest that you put money in the 2 year scheme, as interest rates will fall.
The bank offers an interest rate of 6.6% for a maturity term between 1 to 3 years.
Remember, that interest rates on bank deposits are taxable, so your returns could fall even lower. So, how is FD income taxed? The interest income earned on FDs is fully taxable and is added to an individual's total income and taxed at the applicable slab rate in which the concern falls.
Reflected as part of ‘Income from other sources' in the ITR, the interest accruing on FD is also subject to TDS or tax deduction at source. Wherein the bank deducts TDS on interest income at the end of each year and not upon payment of FD proceeds.
The TDS rate is 10% from the interest income if it exceeds Rs. 10,000 in a year. Also, there are certain instances, when banks deduct TDS @20% such as when the depositor does not furnishes his or her PAN details.
However, in a case when the total income including interest income from FD is less than the minimum amount which is taxable, no TDS is deducted by banks.
We suggest that you can also look at company deposits, if you really want to make slightly more money from fixed deposits. These are also very much taxable.
Private Banks have also aligned their interest rates to government banks and offer interest rates along the same lines. Only company fixed deposits offer you slightly higher interest rates, which can sometimes go upto to as higher as 8.75 per cent. However, there is always an element of risk in these deposits.
Bank of India
Bank of India offers an interest rate of 7 per cent for 1-2 and three year tenures. This is more or less in line with the deposits of most other banks in the country. Private Banks have also aligned their interest rates to government banks and offer interest rates along the same lines. Only company fixed deposits offer you slightly higher interest rates, which can sometimes go upto to as higher as 8.75 per cent. However, there is always an element of risk in these deposits.