Interest rates

Here are five banks offering the best interest rates

Tax-efficient term deposits: here are five banks offering the best interest rates

Photo: iStock

Tax-saving term deposits (FDs) are one of the most popular investment plans because they serve both purposes of an investor: to save money on taxes and to protect against market volatility because they are in no way linked to stocks.

Unlike mutual funds and other investment vehicles, tax-saving term deposits do not generate market-related returns. They have a fixed interest rate and guaranteed returns for the duration of the loan. FD interest can serve as a regular source of income for seniors, in addition to saving them money on taxes. Tax-saving DFs have a fixed term of five years. These investment options give the investor the benefit of a tax deduction of up to Rs 1.5 lakh in a financial year under Section 80C.


Hindu Undivided Individuals and Families (HUFs) are the only ones who can invest in tax-saving DFs under current tax laws. One can start a tax savings FD with any bank, including the bank with which one already has a savings account, as long as the bank allows one to do so without first opening a savings account.

One can also open a tax savings FD without having an account with the bank, but the customer will have to go through a Know-Your-Customer (KYC) procedure. Self-attested copies of your ID (PAN), proof of address (passport, driver’s license, etc.) and passport-size photos will be required to complete the KYC process. The tax term deposit can be opened jointly, however, a tax benefit can only be claimed by the first holder.

Tax-saving DF interest payments

The interest rate offered on these FDs varies from bank to bank. One can choose from cumulative interest or non-cumulative options of tax reduced DFs which are normally offered by most banks. The cumulative option means that the interest accrued on your capital will be reinvested and paid to you at maturity. On the other hand, in the event of a non-cumulative option, the interest will be paid to you on a monthly/quarterly/half-yearly/annual basis as proposed by the bank. Seniors generally get higher interest rates on tax-saving DFs.

Five banks offering best tax-saving FD interest rates

DCB Bank 6.6%

Industrial Bank 6.5%

RBL Bank 6.3%

IDFC First Bank 6%

Bank Karur Vysya 5.9%


The TDS is applicable since the interest received is taxable according to the tax bracket of the investor. Interest on deposits is paid monthly or quarterly, or it can be reinvested. By submitting Form 15G (or Form 15H for seniors) to the bank, a person can avoid the TDS deduction on interest earned.