Pros and Cons of Tax-saving Fixed Deposits

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.

To learn more about tax-saving options, visit our e-filing website.

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