For investors, tax-saving FDs are quite prominent. A few moderate investors choose these FDs to take advantage of the tax deduction benefit up to Rs 1.5 lakh under section 80C and maturity period of 5 years. But the major disadvantage is that premature withdrawal is not allowed within the lock-in period of 5 years. In these turbulent days, as equity and debt markets are driven by uncertainty, a fixed bank deposit provides some succour. Investors, since returns are assured, prefer fixed deposits (FDs). Bank FDs are more appealing to those in the lower tax brackets, as the odds of losing their principal are minimal and the outward tax is weaker. There are several banks that bid you relatively high rates, even though bank FD rates have dropped to low rates.
Small private banks bid interest rates on tax-saving FDs of up to 6.95 percent and compared to major public sector banks, these are much better. With 6.95 percent interest, DCB Bank takes the top spot, trailed by private banks that pay 6-6.75 percent interest on FDs, such as IndusInd Bank, RBL Bank, Yes Bank and Karur Vysya Bank. Private banks namely Axis Bank, ICICI Bank and HDFC Bank bid interest on tax-saving FDs of 5.50 percent, 5.35 percent and 5.30 percent respectively. State Bank of India (SBI), that provides 5.40 percent interest on tax saving FDs, is the highest rate proposed by a public-sector bank on a five-year tax-saving FD, led by Bank of India and Canara Bank, which offer 5.30 percent returns. On tax-saving FDs, Bank of Baroda is providing 5.25 percent interest. After five years the amount of Rs 1.5 lakh deposited in DCB Bank and SBI tax-saving FDs will rise to Rs 2.12 lakh and 1.96 lakh in return.
|Private Banks||ROI p.a in %|
|karur Vysya Bank||6.00|
|Public Sector Banks||ROI p.a in %|
|Bank of India||5.30|
|Punjab & Sind Bank||5.30|
In order to gain customers and depositors attraction and faith small private banks with low potential customers usually offer higher rates. Which is why cheaper rates are provided by government-owned banks. Hence, it will be better if you consider both higher returns and comparatively larger banks with good financial results and services.