Tax-Saving Fixed Deposits (FDs) are a popular investment option, especially among those looking to invest their money and save tax. These FDs offer safety, assured returns and tax benefits under Section 80C of the Income Tax Act, 1961. These fixed deposits are similar to regular FDs but with added tax benefits. The amount invested in these FDs is eligible for a deduction of up to Rs 1.5 lakh under Section 80C, reducing your taxable income. The lock-in period for tax-saving FDs is five years, meaning you cannot withdraw the money before this period ends. Interest Rates and Lock-in Period The interest rates on tax-saving FDs vary across banks and typically range from 6% to 7.5% per annum, depending on the bank and prevailing market conditions. Senior citizens often receive a higher interest rate, usually 0.50% more than the standard rates. It’s important to compare the rates offered by different banks to maximise your returns. One of the significant factors to consider is the five-year lock-in period. Unlike other FDs, you cannot prematurely withdraw funds from tax-saving FDs, nor can you avail a loan against them. This lack of liquidity is a crucial factor, especially if you foresee needing access to your funds within this period. Also Read: Want to become a CROREPATI at a young age? Just follow these 5 tips Investment Limit and Flexibility The minimum investment amount for tax-saving FDs usually starts from Rs 1,000, with the maximum investment limit being Rs 1.5 lakh per financial year to avail of the tax deduction. You can invest a lump sum or make multiple deposits within the financial year, provided the total amount doesn’t exceed Rs 1.5 lakh. It’s important to plan your investments carefully to maximise your Section 80C benefits. Reinvestment of Interest Banks typically offer the option to reinvest the interest earned from your tax-saving FD or receive it periodically (monthly, quarterly, or annually). Reinvesting the interest can help compound your returns, but remember that each interest payment will be taxed, adding to your taxable income. Tax-saving FDs are a secure investment for those looking to save on taxes while earning a steady return. However, you must compare returns vis a vis other investment options and can determine whether tax-saving FDs are the right fit for your investment portfolio. The table below compares the interest rates of 5-year tax-saving FDs of more than 30 public and private sector banks, including SBI, HDFC Bank, Axis Bank, ICICI Bank, BoI, PNB and Union Bank. You can check and decided based on your goals. Note- Data taken from respective bank’s website as on 15th August 2024. Compiled by Bankbazaar.com
