Should You Choose a Tax-Saving FD?

Posted in Fixed Deposits By Friyana Munshi - Jan 7,2023
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Let’s face it, the present macroeconomic condition in India and beyond can bring a sweat to your brow. Incessant layoffs in multinational companies, constantly rising inflation and interest rate hikes all point to a tough time ahead. To tackle these, it is essential to take the appropriate steps in building and maintaining an emergency fund. These will be your saving grace in any financial disaster like recession or unemployment. While mutual funds and ETFs are a great way to get massive returns on your investments, volatile times call for different measures. 

With the wide range of opportunities available at your fingertips and the prerequisites of each financial tool, investments can be a tough choice. Like you, many need clarification on the best way to build such emergency funds. All investment plans and savings options come with their own pros and cons in the form of benefits and risks. Why not broaden your financial perspective? Remember, widening your investing portfolio is always a great way to increase your funds safely.  

Are age-old fixed deposits beneficial even today?

A traditional fixed deposit is one of the best ways to tackle the waves of fluctuation and volatility in markets. How, you might ask? The most common measure taken against inflation by central banks is to hike their repo rates, which in turn results in banks increasing their interest rates. Does this make you frown due to the rise in your loan EMIs? But wait, even your FD return rates skyrocket due to any surge in repo rates! 

Are you looking forward to putting your money in tried and trusted FDs in hopes of making the most of the recent repo rate hike? Sorry to say, but then you have yet another roadblock in your path to monetary security. Regular and tax-saving are two types of FDs available for you to save money. Which one should you opt for? Let’s start with the basics of ‘who’s who.’ 

Regular FDs

These deposits lock in your money for a fixed interest rate and period. A regular FD benefits those wanting to accumulate and grow their money over a specific timeframe. The minimal deposit required under this savings option varies across multiple financial institutions, ranging from ₹5,000 to ₹15,000. However, there is no limit to the maximum amount you can deposit in an FD. 

Compared to banks, NBFCs provide FD schemes with higher interest rates and hence have more earning potential. Some NBFCs allow you to get up to 7.95% interest on deposits worth ₹15,000. But what if an emergency comes pounding on your door and you need the money urgently? You can make premature withdrawals in an emergency for a small fee charged by the financial institution. In this way, you can get an urgent loan against your deposits quite easily.   

You may be worried about your funds’ security, especially if you are looking to put your money in an NBFC’s FD scheme. No worries, all you need to do is look for plans with high safety ratings from capital rating bodies like CRISIL and ICRA and invest stress-free. These ratings tell you which FDs are more secure, convenient to save, and best to grow your money. 

Tax-saving FDs

We are constantly looking for ways to save more of our money on taxes. Along with conventional financial instruments like ELSS mutual funds and life insurance premiums, did you know that you can save a lot on taxes with a tax-saving FD? These deposits come with a compulsory lock-in period starting from a minimum of 5 years. Don’t let this long-term deposit scheme scare you away from saving big! You can claim up to ₹1.5 Lakhs as tax deductions on your total income under Section 80C of the Income Tax Act, 1961. 

With a minimal amount of ₹100, you can start saving your money in a tax-saving FD right from today. The maximum amount is capped at ₹1.5 Lakhs per financial year. The returns you can receive on maturity are predetermined and not subjected to any micro- or macro-economic change during the lock-in period. So, rest easy knowing that you will receive the promised interest on your deposits! Along with the advantage in taxes, these offer you the opportunity to save a lumpsum amount for significant future expenses, such as your children’s education, down payments on a house, or other loans.  

Regular Vs Tax-saving FDs

Now that the basic concept of both these financial tools is clear, the question arises of which one to choose. It all depends on your financial goals. A regular FD is recommended if you are looking to save lumpsum amounts for good stable returns. A regular FD can always benefit you, whether building your emergency fund or making the most of inflation. These are not affected by market fluctuations and provide better returns when compared to tax-saving FDs. It is a verified, safe, and secure way to widen your portfolio. Compared to instruments like mutual funds, FD returns might lack the appeal; however, it is the stability of the fund which makes it an attractive savings option. So, if saving wealth is your goal, a regular FD should be your go-to choice! Meanwhile, if you want to utilise the provisions under Section 80C of the Income Tax Act of 1961, a tax-saving FD is here to ease the burden. These can get you tax deductions of up to ₹1.5 Lakhs on your gross taxable income. However, you cannot make any premature withdrawals from a tax-saving FD. This means that you cannot liquidate these for urgent requirements. Consequently, you cannot consider a tax saving FD as a part of your emergency fund. Despite this, it is one of the safest options among tax-saving financial instruments as it is not affected by market fluctuations and keeps your money securely locked away for an extended period of time. Even though the return rates are lower than that of a regular FD, they provide stable and secure returns at the end of their long tenors. Ready to save on some tax while looking forward to long-term returns and savings? Then the tax-saving FD is the perfect financial tool for you to save your money with! 


Whether long-term or short-term, every investment is a step towards a more financially secure future. Putting all your eggs in one basket can be risky. Spreading out your money in different assets is a great idea. Utilising the traditional FDs to build your funds is not a bad option either. Although other financial tools might entice you with their high returns and liquidity, FDs offer gradual growth and security to your funds. Whether tax-saving or regular, choose the deposit that supports your dreams and ambitions in the long run. 

Convinced enough about the multifaceted benefits of FDs? Well then, go on to Bajaj Markets now and find FD plans with up to 7.95% returns guaranteed on your savings! With a completely digitised application process, get the desired funds to fuel your dreams with just a click. Get an FD now!  

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