DCB Bank offers 6.95 percent on tax-saving deposits. It is followed by IndusInd and Yes Bank, which provide a 6.75 percent interest rate.
Investing in tax-saving fixed deposits gives you an opportunity to take the section 80C tax deduction benefit. You can claim up to Rs. 1.5 lakh for tax deduction under section 80C. Tax-saving FDs have a period of five years where premature withdrawals are not allowed. The equity markets are high all the time and the valuations are stretched. Although interest rates are low, some banks offer attractive tax-saving fixed deposits. Investors also happen to prefer fixed deposits as returns in FDs are certain. Those who are in the lower tax brackets find bank fixed deposits particularly attractive as it is fully taxable.
Small private banks offer an interest rate of 6.95 percent on tax-saving fixed deposits. However, these interest rates are higher for them than any other public sector banks. DCB Bank is on the top of the list with a rate of 6.95 percent, followed by private banks such as IndusInd Bank and Yes Bank that offer up to 6.75 percent interest on five years of tax-saving FDs.
AU Small Finance Bank offers a 6.50 percent and Ujjivan Small Finance Bank offers a 5.80 percent interest on tax-saving FDs. The interest rates offered by small banks with fewer customers are higher compared to the leading private banks. Private Banks such as Axis Bank, ICICI Bank, and HDFC Bank offer 5.50 percent, 5.35 percent, and 5.30 percent interest respectively on tax-saving FDs.
Union Bank, which is a public sector bank gives the highest interest rate of 5.55 percent interest, followed by Canara Bank and State Bank of India offering 5.50 percent and 5.40 percent interest on tax savings FDs respectively. Bank of Baroda offers a 5.25 percent interest on tax-saving FDs.
Small private banks do not have a large customer base which makes them offer high rates to attract people. Government-owned banks, on the other hand, offer lower rates.