Tax-saving FDs: 5-year lock-in, top rates at 7.90%
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- Tax-saving FDs qualify for deductions of up to ₹1.5 lakh under Section 80C of the Income Tax Act, but only the principal is eligible — interest earned remains fully taxable.
- Suryoday Small Finance Bank offers the highest 5-year tax-saving FD rate at 7.90%, followed by Jana Small Finance Bank at 7.77% and Ujjivan Small Finance Bank at 7.20%.
- DCB Bank leads private banks with 7.25%, while Bank of Baroda tops PSU banks at 6.30%; SBI and Canara Bank trail at 6.05% and 6.25% respectively.
- These deposits carry a mandatory 5-year lock-in with no early withdrawal, and premature exit can trigger penalties of 0.5%–1% below the contracted rate plus interest recalculation.
- Eligible investors include Indian residents, senior citizens, HUFs, and NRIs, with the product pitched at risk-averse savers prioritizing capital protection over equities and mutual funds.
- Interest rates for small savings schemes are set by the Finance Ministry using a formula tracking comparable-maturity government securities yields, per the article.
Why it matters: Risk-averse savers can lock in returns as high as 7.90% while reducing taxable income by up to ₹1.5 lakh under Section 80C — but the 5-year mandatory lock-in ties up capital and interest earned remains fully taxable. The 185-basis-point gap between Suryoday Small Finance Bank (7.90%) and SBI (6.05%) gives FD shoppers a concrete reason to compare across bank categories before committing.
