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Best tax-saving fixed deposits: SBI Vs ICICI Vs HDFC Bank Vs Kotak Vs Axis; Interest rates compared

Instead of regular fixed deposits, you should go for Tax-Saving FDs as apart from giving decent returns, they will also help you save tax.

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Tax-saver fixed deposits may not prove to be an ideal investment avenue due to the inability of their post-tax returns to beat inflation costs over the long term of 5 years and above.

With the rising interest rates, fixed deposits (FDs) have again become the flavour of the season. However, if you are looking to invest your money for the medium to long term, then instead of regular FDs, you should go for Tax Saving Fixed Deposits as apart from giving decent returns, they will also help you save tax.

Tax Saving Fixed Deposits, in fact, provide investors tax deduction on the investment amount up to Rs 1.5 lakh a year, under Section 80C of the Income Tax Act, 1961. However, you need to remember that unlike regular fixed deposits, pre-mature withdrawal facility is not available on such deposits, before the completion of the lock-in period of 5 years. You also can’t avail a loan against these tax-saving deposits. In other words, unlike regular fixed deposits, tax-saver FDs allow you to save a good amount of tax. The only hitch, however, is that you need to be sure that you won’t need the money for the next 5 years. For, unlike regular FDs, sax-saver FDs can’t be broken pre-maturely.

You also need to remember that the interest earned from the tax-saving or tax-saver FDs is not tax-free. “Such interest amount is added to the investor’s annual income, under the head ‘Income from other sources’, and is taxed according to the corresponding tax slab. Tax-saver FDs can be held either solely or jointly. In case the deposit has been held jointly, the tax benefit is entitled only to the first/primary holder. However, the investor can choose a nominee who can withdraw the fixed deposit, pre or post maturity, in case of his/her demise,” says Naveen Kukreja, CEO & Co-founder, Paisabazaar.com.

Even though deposits up to Rs 1 lakh are covered under the Deposit Insurance and Credit Guarantee Sorporation (DICGC) scheme, tax-saving fixed deposits may not prove to be an ideal investment avenue due to the inability of their post-tax returns to beat inflation costs over the long term of 5 years and above.

“Therefore, instead of traditional tax-saver FDs, you should consider investing in schemes like ELSS (Equity Linked Saving Scheme). ELSS is diversified equity mutual fund that invests majorly in equity and equity-related securities. Not only does ELSS have the lowest lock-in period of 3 years, it has also consistently outperformed its peers such as PPF (currently 8% p.a return for the quarter October to December 2018) or NSC (currently 7.6% p.a. return) in the long run, by providing inflation-beating returns (currently around 10%-16% for 3-year period and 16%-21% for 5-year period),” informs Kukreja.

Whatever be the case, for those looking to invest in tax-saver fixed deposits, here are the latest rates of some of such FDs, including those of SBI, HDFC Bank, ICICI Bank and Kotak Bank, among others:

Thus, while tax-saving fixed deposits may be a good bet for investment, you should also keep your long-term financial goals in mind.

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