5 Banks That Offer the Highest Interest Rates on Tax Saving FDs

Tax Saving FDs have a fixed term of five years. Tax Saving FDs offer the investor the benefit of a tax deduction (of up to Rs 1.5 lakh in a financial year) under Section 80 of the Income Tax Act 1961.

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

Interest payments from tax-saving FDs

The interest rate offered for such FDs varies from bank to bank. You can choose from cumulative interest or non-cumulative options of tax-saving FDs typically offered by most banks.

Cumulative option means that the interest accrued on your principal is reinvested and paid to you at maturity. On the other hand, with the non-cumulative option, you will be paid interest on a monthly/quarterly/semi-annual/annual basis as offered by the bank. Seniors are typically offered higher interest rates on tax-saving FDs.

The tax-saving fixed-term deposit can be opened jointly, but a tax advantage can only be claimed by the first holder.


The interest is taxed depending on the tax bracket. TDS is applicable as the interest received is taxable depending on the tax class of the investor. Interest on deposits is paid either monthly or quarterly, or can be reinvested. By filing a Form 15G (or Form 15H for seniors) with the bank, a person can avoid the TDS deduction on the interest earned.

Early Withdrawal

Early withdrawal or partial withdrawal before the end of the blocking period of five years is not permitted.

However, in the event of the depositor’s death before the term deposit was due, the penalty would not be assessed and the nominee or legal heir would be entitled under the rules to make an early payment even before the lock-up period.

According to that

Website: “If a holder of a fixed deposit dies and no nomination is in effect at the time of his death, the holders of the branch from which the fixed deposit was issued shall pay to his legal heirs the amount due to the deceased as under the Rules.”


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