Tax Saving FD: 5 banks offering highest interest rates on tax-saving FDs

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Tax-saving FDs come with a fixed tenure of five years. Tax-saving FDs give the investor benefit of tax deduction (of up to Rs 1.5 lakh in an FY) under section 80 of the Income-tax Act, 1961.

The minimum investment amount for a tax-saving FD differs from bank to bank. Additionally, there is no upper limit.

Interest payments of tax-saving FDs

The interest rate offered on such FDs varies across banks. You can choose from cumulative interest or non-cumulative options of tax-saving FDs which are normally offered by most banks.

Cumulative option means that interest accrued on your principal will be re-invested and paid to you at the time of maturity. On the other hand, in case of the non-cumulative option, interest will be paid to you on amonthly/quarterly/half-yearly/annual basis as offered by the bank. Senior citizens are usually offered higher interest rates on tax-saving FDs.

Tax saving fixed deposit can be opened jointly, however, a tax benefit can only be claimed by the first holder.


According to your tax bracket, the interest is taxed. TDS is applicable since the interest collected is taxable depending on the investor’s tax bracket. Deposit interest is paid either monthly or quarterly, or it can be reinvested. By submitting Form 15G (or Form 15H for senior persons) to the bank, a person can avoid TDS deduction on the interest earned.

Premature withdrawal

A premature withdrawal or partial withdrawal before the lockout term of five years is not allowed.

However, in the event of the depositor’s passing prior to the term deposit’s maturity, the penalty would not be assessed, and, in accordance with the rules, the nominee or legal heir would be permitted to make an early payment even before the lock-in period.

According to the

website, “If a holder of term deposit dies and there is no nomination in force at the time of his death, Incumbents of the branch from where the term deposit was issued, shall pay the sum due to the deceased, to his legal heirs as per rules.”

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