Same story every year. As soon as the financial year starts or ends, the worry of saving tax begins. Where to invest? Where will the money be safe? Where will we get good returns? In the confusion of these questions, we often choose options that are either risky or take a long time to give results.

But what if we tell you about an investment that solves all these problems? A scheme where there is no risk of losing money, no tension about tax, and the returns are also good! We are talking about the 5-year tax-saving Fixed Deposit (FD). This is not just any FD, but a smart way to invest your money. Let’s understand it in simple words.

What is a Tax-Saving FD and Why is it Special?

In India, many people want to save tax and earn good returns. Tax-saving FD is a good option for this. As the name says, this FD helps you save tax. It has a lock-in period of five years. This means, once you put money in it, you cannot take it out before five years. But in return, you get three big benefits.

The first benefit is tax saving. This is the main reason people choose it. Under Section 80C of Income Tax Act, you can save tax on ₹1,50,000 in one year. This amount is removed from your total income. So, you pay less tax.

The second benefit is that your money is safe and you get fixed returns. This FD is not linked to share market. So, there is no risk. The interest rate stays the same for five years. Also, your money is safe up to ₹5 lakh under DICGC, which is a rule of RBI.

The third benefit is that you get good interest. Banks give better interest on five-year FDs. You get fixed and good returns on this FD.

See How Your Money Will Grow

If you invest ₹1,50,000 for five years:

  1. At 6.50% interest, you get ₹2,07,370 after five years.
  2. At 7.00% interest, you get ₹2,12,220.
  3. At 7.50%, you get ₹2,17,210.
  4. At 7.60%, you get ₹2,18,250.
  5. So, you earn ₹57,000 to ₹68,000 in five years.

Important Things to Know

You cannot take your money out before five years. Only if the person who opened the FD dies, the nominee can get the money early.

The interest you get is not tax-free. If all your FDs give more than ₹40,000 interest in one year, the bank will cut TDS. For senior citizens, the limit is ₹50,000.

This FD will not renew by itself after five years. You have to reinvest it yourself. Also, you cannot take a loan on this FD. Loan is not allowed during the five years.

Conclusion

If you want to save tax and also want your money to be safe, then tax-saving FD is a good choice. It gives fixed returns, no market risk, and helps you pay less tax. It is good for people who want a simple and safe way to grow their money.

Frequently Asked Questions

Can I break tax-saving FD before five years?

No. You cannot break it early. Only the nominee can get money if the person dies.

What is the minimum and maximum amount to invest?

Minimum is ₹1,000. Maximum for tax saving is ₹1.5 lakh in one year.

Do I have to pay tax on interest?

Yes. If your total interest from FDs is more than ₹40,000 in one year, bank will cut TDS. For senior citizens, it is ₹50,000.

Can I open a joint tax-saving FD?

Yes. But only the first person will get the tax benefit.

Can I take a loan on this FD?

No. You cannot take a loan during five years.