POTD vs tax-saving FD: Which offers higher rate?

The government revises small savings schemes interest rates every quarter. However, for the April- June 2024 quarter, the government has kept the rates unchanged of all the 10 small savings schemes which includes Post Office Time Deposit (POTD) of 5 year tenure. Many banks also offer tax saving benefits on 5 year fixed deposits.

Here is a comparison of 5-year POTD vs major banks’ tax saving fixed deposits.

Also read: Was Public Provident Fund rate hiked for April-June 2024 quarter?

Tax saving fixed deposits

A tax-saving fixed deposit allows you to deposit up to Rs 1.5 lakh. A tax-saving FD has quarterly compound interest. At the conclusion of each quarter, interest is credited to the respective accounts. Under Section 80 C of the Income Tax Act, 1961, investments made in tax-saving FDs are eligible for a tax deduction of up to Rs. 1.5 lakh. The tenure of the tax saving FD is 5-years. You cannot, however, prematurely liquidate or withdraw these FDs, unlike conventional FDs.

Interest rates differ from bank to bank. For general residents, State Bank of India (SBI) gives an interest rate of 6.50%; for tax-saving FDs, HDFC Bank and ICICI Bank offer interest rates of 7%. For tax-saving FDs, DCB Bank gives a 7.75 percent interest rate, while IndusInd Bank offers a 7.25 percent interest rate.

Also read: What is the NSC interest rate for April-June 2024 quarter?

Post Office Time Deposit (POTD)

On-time deposits with a five-year duration, Post Office Time Deposit (POTD) also provide you a tax benefit. Section 80C of the Income-tax Act of 1961, permits you to claim a tax deduction of up to Rs 1.5 lakh for investing in a 5-year Post Office Time Deposit.

Also read: What is the SCSS interest rate for the April- June 2024 quarter?

The interest rate on POTD for April-June 2024 is 7.5 per cent. The minimum investment is Rs 1000 and in multiples of Rs 100.

Banks offering best rate on tax saving FD

Bank Name Tax Saving
DCB Bank 7.4
Indusind Bank 7.25
Yes Bank 7.25
RBL Bank 7.1
HDFC Bank 7

Tax benefit of 80C

Section 80C enables taxpayers to lower their taxable income by making investments that save them money on taxes or by incurring certain expenses that qualify. The section 80C benefit is only available for those taxpayers who opt for the old tax regime. It permits an annual deduction from the taxpayer’s gross income of up to Rs 1.5 lakh. Individuals investing in 5 year Post office time deposits are eligible for tax benefit. Note that tax benefit is available only if the deposit is held till the end of the tenure i,e 5 years.

Also read: FD interest of up to 7.9%: Want higher rate on your tax-saving FD? Book it right now

Roy Walsh

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