Investment in five-year fixed deposits or tax-saving FDs - is locked in for a period of five yearsMoney invested in a five-yearfixed deposit (FD)account offers income tax benefit - in form of deduction of taxable income - under Section 80C of Income Tax Act.
Using this special type of fixed deposit or FD, investor can obtain a deduction up to Rs 1.5 lakh from taxable income in a financial year under Section 80C rules.
Major commercial banks -from state-run State Bank of India (SBI) and Punjab National Bank (PNB), to private sector peers HDFC Bank and ICICI Bank- pay interest at rates to tune of 6.25-7.25 per cent to general public, and 6.7-7.75 per cent to senior citizens, on tax-saving fixed deposits up to Rs 1 crore.>BankInterest rateGeneral publicSenior citizenState Bank of India6.85%7.35%Punjab National Bank6.25%6.75%Bank of Baroda6.70%6.70%HDFC Bank7.25%7.75%ICICI Bank7.25%7.75%(Source: Bank websites)State Bank of India (SBI)The country's largest bank pays interest at rate of 6.85 per cent to general public, and 7.35 per cent to senior citizens,on five-year fixed deposits under its tax savings scheme, SBI Tax Savings Scheme, according to its corporate website - sbi.co.in.Punjab National Bank (PNB)Under its five-year tax-saving fixed deposit, PNB Tax Saver FD, state-run bank pays interest at rate of 6.25 per cent to general public and 6.75 per cent to senior citizens, according to Punjab National Bank's website - pnbindia.in.Bank of BarodaBank of Baroda pays interest at rate of 6.7 per cent on investment in tax-saving fixed deposit - Baroda Tax Savings Term Deposit - with effect from November 1 , 2018, according to lender's website - bankofbaroda.com.
Meanwhile,Vijaya Bank and Dena Bank will become a part of Bank of Baroda with effect from April 1 this year.The merger will make Bank of Baroda country's second-largest public sector bank, after State Bank of India.ICICI BankICICI Bank offers interest at rate of 7.25 per cent to general public, and 7.75 per cent to senior citizens, on deposits in five-year tax-saving fixed deposits, called 5-Years Tax-Saver FDs, according to lender's website - icicibank.com.HDFC BankHDFC Bank pays interest at rate of 7.25 per cent to general public and 7.75 per cent to senior citizens,on five-year tax-saving fixed deposit, according to its website - hdfcbank.com.Banks do not allow a premature withdrawal from such FD accounts before completion of five years from date of issue.
In other words, investment in these fixed deposits - tax-saving FDs - is locked in for a period of five years from date of issue, which means thatin order to utilise tax benefit, investor has to keep amount locked in fixed deposit during this period.