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 10-14 months deposit. The interest rate is kept at 6.5 per cent for various other tenures ranging from 2-5 years. With the banking system flush with money, it is extremely difficult to see interest rate rising any further. This is probably the best it would get in interest rates from government owned banks.
Allahabad Bank offers an interest rate of 6.60 per cent on the 1-2 year deposit. This is slightly lower than the interest rates offered by Union Bank of India. The 2-3 year deposit offers an interest rate of 6.5 per cent. Being a government owned bank the FDs are rather safe. However, do not put money for a very long term tenure as there is a possibility that interest rates may even rise after a few years.
Oriental Bank of Commerce
This is one of the few government owned banks that offers an interest rate of 6.5 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%. So, if you are looking to place money, we suggest that you put money in the 2 year scheme, as interest rates will fall. At the moment interest rates on government bank deposits are almost the same with very little difference.
Punjab and Sind Bank
Punjab and Sind Bank offers an interest rate of 6.7 per cent on deposits ranging from 1 to 5 years. This is as good as the interest rates offered by Union Bank of India among the government owned banks in the country.
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 Maharashta
Bank of Maharashtra offers an interest rate of 6.5 per cent for its 365 days tenure. 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.
Consider small finance banks
If you are unhappy with the interest rates offered by government owned banks, you can also consider the small finance banks. Some like Suryoday Small Finance Bank offer an interest rate as high as 8.75 per cent. Even investment in some company fixed deposits could fetch you a very good return.
At the moment interest rates are very low and hence you have to make the best of what you get.