Tax-Saver Fixed Deposits: Benefits and Features

Investing in tax-saver fixed deposits offers several benefits:

1. Higher Interest Rates Compared to Savings Accounts

Tax-Saver Fixed Deposits generally offer higher interest rates compared to regular Savings Accounts. Such FDs provide an opportunity for individuals to grow their wealth while saving on taxes.

2. Tax Savings U/s 80C of the Income Tax Act

Unlike regular Fixed Deposits, you can save on your tax outgo with Tax Saving FDs under Section 80C of the Income Tax, 1961. As of August 2024, you claim tax deduction up to ₹1.5 lakh.

3. Lock-in Period for Disciplined Saving

Tax-Saver FDs come with a lock in period of 5 years, meaning you cannot withdraw the deposit amount till your FD matures. In a sense, it's a good way of parking your money in an instrument for long-term. It helps you save in a disciplined manner without giving in to your impulses.

4. Secure Investment

Investments made in Tax-saver Fixed Deposits are insured under Deposit Insurance and Credit Guarantee Corporation (DICGC) for an amount up to ₹5 lakh per depositor in a bank. Also, unlike ELSS investments, the FD interest rates remain unaffected by market conditions. The interest rates remain fixed until maturity, providing stability and security.

5. Flexible Deposit Amount

Such FDs offer flexibility in terms of the deposit amount. You can invest as per your convenience and financial goals, starting from a minimum amount set by the bank.

6. Interest Pay-out Options

Tax Saver FDs often come with flexible interest payment options. If you're looking for a regular income stream, you can opt for monthly or quarterly interest pay outs (mostly at a discounted rate), or if you can opt for interest pay-out at the time of maturity.

Tax-Saver Fixed Deposits offer a great opportunity to save on taxes while growing your wealth. By investing in these fixed deposits, you can claim deductions under Section 80C of the Income Tax Act, 1961, and earn higher interest rates compared to regular savings accounts.

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