Tax Saving FD For The Risk Averse

Month of March is the time to make some smart investment decisions. Looking at the volatility of markets, FDs look like a better option in the long run. FDs at least guarantee fixed returns at the end of the tenure and they are a good option for the lower tax groups. Risk averse anyways look for stable investments only and the those who want higher risk will have to manage higher risks too.

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From FY 2020-21, the old tax regime can be continued with existing deductions and tax exemptions. Any individual can otherwise choose the concessional tax regime without claiming any deductions and tax exemptions. When the taxable income does not exceed Rs.5 lakh, the effect shall be the same, a rebate is available u/s 80C for investments up to Rs.1.5lakh, u/s 80D for health insurance and 80TTA for savings account interest earned from a bank or post office etc. 

While planning to invest your money, the small private sector banks look quite attractive. They offer higher rates to attract customers and thereby broaden their base. But the larger and govt. established banks do not need to do so and hence the interest rates offered by them are slightly lower. The financial standing of the bank you choose matters and not the higher interest rate should be the sole criteria.

When we look at the public sector banks, Union Bank of India offers 5.55% and is on top for its rate on a 5-year tax saving FD. Canara Bank offers 5.50%, State Bank of India 5.40% and Bank of Baroda 5.25%.

There are a few banks which offer higher interest rates on FDs as compared to their counterparts. Small private banks offer higher returns on FDs than the public sector banks. These Banks not only are ahead of the leading public sector banks but also lead other private sector Banks.

The highest rate of interest is 6.75 offered by DCB Bank and Yes Bank. Next come IndusInd Bank and AU small Finance Bank with 6.50% interest on FDs for five years’ lock-in period. Ujjivan small Finance Bank offers 5.80%. 

If we look at other private sector banks, Axis Bank provides 5.50%, ICICI Bank 5.35% and HDFC Bank offers 5.30% on tax saving FDs.

Among the foreign banks, DBS Bank offers 5.50% and Deutsche Bank offers 6% interest on tax saving FDs.

Read the following table with the facts pointed out here-

  • Data has been compiled from the websites of respective banks as on March 3,2021.
  • Only those banks which are listed on the stock exchanges have been considered.
  • The banks for which data is not available on their respective websites are excluded.
  • The rates shown here are applicable to non-senior citizens and they are of tax-saving 5-year FDs.

                              

BanksInterest Rate per annum (%)What Rs.1.5lakh grows to in 5 years (Lakhs)
Private Banks
DCB Bank


                     6.75


                    2.10
Yes Bank                    6.75                    2.10
IndusInd Bank                    6.50                    2.07
RBL Bank                    6.40                    2.06
City Union Bank                    6.00                    2.02

Public Sector Banks
Union Bank                    5.55                    1.98
Canara Bank                    5.50                    1.97
State Bank of India                    5.40                    1.96
Bank of India                    5.30                    1.95
Punjab National Bank                    5.30                    1.95
Compiled by BankBazaar.com.

Thus, the tax saving FDs serve as both a stable earning source of income and helps the investors to preserve wealth. Such an investment does not need any strategy and are the easiest medium to invest.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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