Since tax saving FDs come with a tenure of five years, premature withdrawals are not allowed in tax saving fixed deposits. In simple words: your money will be locked for five years.
It is important to note that interest earned on tax-saving FDs is subject to tax deduction at source (TDS) depending on the investor's tax bracket. According to ET, TDS is applicable if the total interest earned by an individual exceeds Rs 40,000 in a financial year. However, senior citizens can claim an annual interest deduction of up to Rs 50,000 under Section 80TTB.
Top 5 Tax-Saving Bank Fixed Deposits
When choosing a bank for tax-saving FDs, it is important to compare the interest rates offered by different banks and not just choose the bank where you have your savings account. A higher interest rate means better returns in the long term.
We take a look at the top 5 tax-saving bank FDs, as per data compiled by ET Intelligence Group:
Experts believe that interest rates on fixed deposits have reached their peak in the current cycle. As soon as the Reserve Bank of India (RBI) reduces the repo rate, banks will start reducing interest rates on fixed deposits.
Nirav Karkera, Head of Research at Fisdom, advises, “Given how high interest rates are at the moment and the fact that we have reached a plateau in terms of rate hikes, the current moment is an opportunity to capture higher yields before the reversal cycle begins.”