Fixed deposits(FD) are one of the most popular schemes used by Indians for saving. Even for the purpose of tax-saving under Section 80C of the Income Tax Act.1961, many prefer tax-saving fixed deposits over other instruments like, PPF, ELSS, ULIP, NPS that offer better returns, because of convenience and guaranteed returns. One can save up to Rs 1,50,000 in a financial year in tax-saving FDs. 

Worth mentioning here is that tax-saving FDs differ from normal FDs on various counts. Here are the salient features of tax-savings FDs.

1) Tax-saving fixed deposits come with a lock-in period of five years, before which you can not withdraw your money.

2) Only resident individuals and Hindu Undivided Families (HUF) can open these deposits.

3) Tax-saving FDs can be opened either in single or in joint names. In case of joint holding, only the first holder can claim the tax benefit under Section 80C.

4) One can choose either monthly/quarterly/annual interest payout option on these FDs. You can also choose compounding option wherein interest earned will be re-invested.

5) Interest earned on tax-saving fixed deposits is taxable. The interest amount gets added to your annual income and will be taxable as per your income tax slab. Interest payable is calculated on a quarterly basis only.

6) Banks deduct TDS (tax deductible at source) at the rate of 10% on the annual interest earned on these FDs. If you are exempt from paying tax, you need to submit form 15G/H at the beginning of the financial year with the bank.

7) Tax-saving FDs can be opened through any public or private sector banks except co-operative banks and rural banks. 

8) The Post Office term deposit of 5-year also qualifies for deduction under Section 80C.

9) You can neither do premature withdrawal nor take a loan against tax-saving fixed deposits.  

10) Interest rates offered on these deposits vary from bank to bank. While large banks like State bank of India offer the lowest rate on tax-saving deposits, some of the smaller private sector banks offer attractive rates on these deposits. 

Here are the banks that offer the best rates on 5-year tax-saving deposits to non-senior citizens:  

DCB Bank- 6.75%

Yes Bank- 6.75%

Equitas Small Finance Bank- 6.75%

Indusind Bank- 6.50%

AU Small Finance Bank- 6.5%

RBL Bank- 6.40%