Tax-saving fixed deposits (FD) are one of the easiest ways to save taxes under Section 80C. Investing in an tax-saving FD is a simple process that you can do by yourself if you have a netbanking account. You don’t even need to go to a bank if you have the basic requirements like Know Your Customer (KYC) done. But should you invest in tax-saving FDs to fulfill your 80C deductions? Let’s take a look at their pros and cons to understand further.
Pros of tax-saving fixed deposits
- Guaranteed returns ranging from 7-8%
- Lock-in of 5 years
- Complete capital protection
- Higher interest rates for senior citizens
- Easy to open using internet banking facilities
- Can be opened by single and joint holders
- HUFs and NRIs can also invest to save taxes
- Transferable from one branch to another of the bank
Cons of tax-saving fixed deposits
- Interest is taxed and added to income
- No premature withdrawal, loan or overdraft facilities
- Same interest rate for all 5 years
- Interest rate could be lower than prevailing inflation rate
As you have read, the pros of tax-saving FDs outweigh the cons. But that is mostly as a standalone investment. When compared to other tax-saving options like PPF and ELSS funds, tax-saving FDs might not be able to score high. However, they are a decent tax-saving investment that you can make easily, especially when you’re short of time.