The Reserve Bank of India (RBI) decided to keep the repo rate steady at its recent bi-monthly monetary meeting on April 7, 2021. The central bank has kept the key rates unchanged for the sixth time in a row. Fixed deposits are one of the most common investment products in our country, particularly among risk-averse investors such as senior citizens, due to their guaranteed returns, high liquidity, and tax benefits. Following the pandemic outbreak last year, FD interest rates have begun to drop, which has been upsetting investors, and the central bank's latest declaration that the key policy rate will remain at 4% may not put them at ease. Considering the current low-interest-rate environment, risk-averse investors can benefit from investing in five-year tax-saving fixed deposits (FDs). Despite the fact that bank FD rates have sunk to historically low levels, some banks still deliver competitive 5-year FD rates.
5-Year Tax Saving FD Rates
On tax-saving FDs, small private banks bid interest rates as high as 6.75 percent. These tax-saving FD interest rates are higher than those offered by large public sector banks. With 6.75 percent interest, DCB Bank and Yes Bank are at the top of the list, followed by RBL Bank, which offers 6.6 percent interest on five-year tax-saving FDs. Union Bank of India provides the highest interest rate on a 5-year tax-saving FD at 5.55 percent, followed by Canara Bank and State Bank of India (SBI) at 5.50 percent and 5.40 percent, respectively across public sector banks of India. Below are the 5 best private and public sector banks that are currently fetching higher returns on tax-saving FDs.
|Private Sector Banks||Regular FD Rates In %||Senior Citizen FD Rates|
|City Union Bank||6||6|
|Public Sector Banks||Regular FD Rates In %||Senior Citizen FD Rates|
|State Bank of India||5.4||6.2|
|Bank of India||5.3||5.8|
|Punjab National Bank||5.3||5.8|
|Source: Bank Websites|
TDS on tax-saving FDs
The interest earned on a fixed deposit is tax-deductible. Individual investors' tax on FD interest is deducted according to their tax slab rate category. If the earned interest is more than Rs 40,000 for regular investors and Rs 50,000 for senior citizens, banks and non-banking financial firms deduct TDS (Tax Deducted at Source). TDS is usually deducted at a rate of 10%; but, if the investor does not submit a PAN card, the rate increases to 20%.
Tax benefits and capital security on tax-saving FDs
For investments made in tax-saving fixed deposits, a person can claim a deduction of up to Rs 1,50,000 in a fiscal year under Section 80C of the Income-Tax Act, 1961). To settle at net taxable income, the amount thus invested is withheld from gross taxable income. Premature withdrawals are not permitted on these deposits, which have a 5-year lock-in period. When a bank collapses, the Deposit Insurance and Credit Guarantee Corporation (DICGC) only provide insurance coverage to the depositors. Savings accounts, fixed deposits (FD), current accounts, recurring deposits (RD), and other types of deposits are covered by DICGC's insurance cover. Each depositor in a bank is covered up to a limit of Rs 5 lakh for both principal and interest amounts maintained by her or him, according to the DICGC rules.