Because of the stability and certainty of returns, risk-averse investors always favour banks' fixed deposits (FDs) in general. In your portfolio, FDs offer flexible tenures and flexibility to withdraw wherever appropriate. You should save a certain amount of your investments in FDs in lieu of declining interest rates. Considering the competition they face in attracting deposits, the smaller private banks prefer to top the rate map on fixed deposits. Before investing in FDs, though, you can do a detailed risk evaluation and the bank's due scrutiny.
Currently, 6.5 percent interest rates on one-year FDs are provided by small private banks. For example, on a one-year FD, IndusInd Bank, RBL Bank and Yes Bank offer 6.5 per cent interest rates. Opposed to those presented by public sector banks, these returns are much stronger. Compared with leading private banks, the interest rates provided by small finance banks are stronger. For an instance, AU Small Finance Bank and Ujjivan Small Finance Bank provide 5.50 and 6.50 percent interest on one-year FDs, respectively.
On one-year FDs, major private banks such as ICICI Bank and HDFC Bank provide 4.90 per cent interest. Axis Bank is promising an interest rate of 5.15 percent. On a one-year FD, which is the lowest rate across all private banks, Kotak Mahindra Bank offers 4.50 per cent interest only. On one-year FDs, public sector banks namely Union Bank, Bank of India, Punjab & Sind Bank and Canara Bank bid 5.25% interest. Whereas State Bank of India (SBI) and Bank of Baroda (BOB) are providing interest in their one-year FDs at 5% and 4.90%, respectively.
Top 5 Private Sector Banks With Returns Up to 6.5% On 1-Year FD
|Banks||ROI in %|
|IDFC First Bank||4.30|
Top 5 Public Sector Banks With Returns Up to 5.25% On 1-Year FD
|Banks||ROI in %|
|Bank of India||5.25|
|Punjab & Sind Bank||5.25|
|Punjab National Bank||5.20|
Key benefits of bank fixed deposit
A fixed deposit account can be opened by any Indian citizen, including minors & HUFs, to get better returns than standard savings accounts. Some other advantages of a fixed deposit account are as follows:
- FD proposes a stable tenure of between 7 days and 10 years. Therefore, investors can select the tenure of the investment based on the needs of funds and the purpose of the investment.
- In terms of the amount of investment, a fixed deposit strategy often offers flexibility. In your FD accounts, you can deposit as low as Rs 100.
- You can also contribute in a Flexi fixed deposit scheme along with the standard FD scheme. The Flexi deposit enables the investor to link his fixed deposit account to a savings bank account and, according to the requirements of his funds, allows his excess savings to transfer in and out of the associated FD account.
- You can even deposit in a tax-saver FD to earn tax benefits. You can get tax deductions of up to Rs 1.50 Lakh on your holdings with a tax-saver FD.
- You can also interlink multiple deposits to your Savings Bank Account with a sweep-in facility of fixed deposit to receive a higher interest rate on your invested money which is usually stronger than a standard savings account.
How interest income from a fixed deposit is taxed?
Fixed Deposits' interest income is completely taxable as per your tax slab. You can check that on the Income Tax Return under the heading 'Income from Other Sources.' This tax is withheld by the bank at the source at the time the interest is added to the account, and not until the FD expires. Thus, if you hold an FD for 3 years, banks at the end of each year will subtract TDS. If the interest income from all FDs with a bank is less than Rs 40,000 per year, the bank is not allowed to deduct any TDS as per the guidelines of RBI. In the case of a senior citizen aged 60 years and over, the cap is Rs 50,000. The cap of TDS on interest income was Rs. 10,000 prior to Budget 2019. Out of all the FDs you have with the bank, the bank calculates the interest benefit for the year. If the interest benefit crosses Rs 40,000, there will be a 10 percent TDS deduction (Rs 50,000 for senior citizens). The cap of TDS on interest income was Rs. 10,000 prior to Budget 19. But remember that if you do not support the bank with your PAN info, 20% TDS will be deducted. When the overall income is lower than the required taxable amount, no TDS is deducted. The bank will not subtract TDS where there is no tax due by the individual. In those situations, however, TDS will not be deducted by the bank only if you submit Form 15G or 15H to receive tax-free income. Submitting Form 15G and Form 15H to the Bank is the best way to ensure that no TDS is withheld by the Bank. In order to prevent the whole inconvenience of the IT Department's additional TDS deduction and resulting refund you need to submit these forms at the beginning of every fiscal year.