8.25% interest on 5-year FD: Best fixed deposit rates for November 2024

As the global financial landscape continues to fluctuate, fixed deposits (FDs) still are a popular choice for conservative investors in India seeking stability and predictable returns.  Whether you're an investor looking to park your funds for a short term or planning for a long-term investment, there are several banks offering attractive fixed deposit rates.

 

Here’s a look at the best FD rates across various tenure brackets and bank categories, including small finance banks, private sector banks, public sector banks, and foreign banks, based on the latest data.

 

Small Finance Banks Lead with Highest FD Rates: Small finance banks are offering some of the best FD rates in India,  with NorthEast Small Finance Bank and Unity Small Finance Bank offering the highest returns at 9.00% for fixed deposits with tenures of 546 days and 1001 days, respectively. These banks have been attracting investors with higher interest rates compared to larger private and public-sector banks.

 

 

Private Sector Banks Offer Competitive Rates: Among private banks, Bandhan Bank offers a return of 8.05% on 1-year FDs, making it one of the top contenders for short-term fixed deposits. RBL Bank also shines with an 8.10% return for FDs with a tenure of 500 days, providing solid options for those looking for medium-term investment solutions.

 

While small finance banks often lead with the highest fixed deposit rates, private sector banks such as ICICI Bank, HDFC Bank, and Axis Bank continue to be popular choices for investors due to their strong reputations, extensive branch networks, and reliable customer service. These banks provide competitive FD rates with a focus on stability and ease of access. For instance, ICICI Bank offers an interest rate of 7.25% for a tenure ranging from 15 months to 2 years, while HDFC Bank provides 7.40% on FDs with a tenure of 4 years and 7 months. 

 

Axis Bank, known for its strong digital presence, offers a 7.25% interest rate on 15-month to 2-year FDs, making it an appealing option for those who prefer to manage their investments online. While their rates might not always match the high returns of small finance banks, these private sector banks are considered a safer bet for investors who value brand trust, liquidity, and convenience, especially for shorter-term deposits.  

Here are the highest FD interest rates across different bank categories and tenures ( Data provided by Paisabazaar)

 

 

Public Sector Banks Provide Stable but Lower Returns: Public sector banks such as Bank of Baroda and Central Bank of India offer rates that are competitive but generally lower than their private counterparts. The FD rate on Bank of Baroda's 400-day Utsav scheme stands at 7.30%, while State Bank of India (SBI) offers 7.25% for FDs with a tenure of 444 days.

 

Foreign Banks for Niche Options: Foreign banks like Deutsche Bank and Standard Chartered offer solid FD rates of 8.00% and 7.50% respectively for medium-term tenures. While these rates are competitive, the foreign banks do not typically match the higher rates available in small finance and private banks.

 

Five-Year Fixed Deposits: While the shorter tenures (1-3 years) generally offer higher interest rates, many investors still prefer the long-term security offered by 5-year FDs. For those seeking long-term options, Suryoday Small Finance Bank offers a solid 8.25% return on 5-year FDs, making it an excellent choice for risk-averse investors looking for higher returns on a longer horizon.

 

How FDs are taxed in India 

Taxation: The interest earned on fixed deposits is subject to tax, which can impact your net returns. Taxpayers in the higher income bracket may find their returns reduced due to the Tax Deducted at Source (TDS) on FD interest earnings.

 

In India, Fixed Deposits (FDs) are subject to taxation based on the income earned from them. Here's a breakdown of how FDs are taxed:

 

1. Tax on Interest Income

The interest earned on FDs is treated as "Income from Other Sources" and is subject to Income Tax based on your income tax slab. The taxability of FD interest depends on the amount earned and your total taxable income.

 

Tax Treatment Based on Income Slabs:

The interest income is added to your total income and taxed according to your applicable income tax slab.

For individuals below 60 years, the income tax slabs for FY 2023-24 are:

Up to ₹2.5 lakh – No tax (basic exemption limit)

₹2.5 lakh to ₹5 lakh – 5%

₹5 lakh to ₹10 lakh – 20%

Above ₹10 lakh – 30%

 

Taxation for Senior Citizens (Above 60 Years):

Senior citizens (above 60) enjoy a higher exemption limit.

Up to ₹3 lakh – No tax

₹3 lakh to ₹5 lakh – 5%

₹5 lakh to ₹10 lakh – 20%

Above ₹10 lakh – 30%

 

Tax Deducted at Source (TDS):

Banks deduct TDS on the interest earned on FDs if it exceeds Rs 40,000 in a financial year (Rs 50,000 for senior citizens).

The TDS rate is typically 10% if your PAN is provided. If you don't provide your PAN, TDS is deducted at 20%.

 

For interest income exceeding Rs 10,000 in a single branch during a financial year, the bank will deduct TDS.

TDS on FD interest is not the final tax; you still need to report this income while filing your tax return, and if the TDS deducted is more than your tax liability, you can claim a refund.

 

2. Tax on Tax-Saving Fixed Deposits

Tax-saving FDs with a tenure of 5 years or more qualify for tax deductions under Section 80C of the Income Tax Act.

You can claim a deduction of up to ₹1.5 lakh per year on the investment in these FDs.

However, the interest earned on these FDs is still taxable, and TDS is deducted by the bank as usual.

The interest earned on tax-saving FDs is added to your income and taxed according to your applicable tax slab.

 

3. Taxation of Interest in Case of Joint FDs

In the case of joint fixed deposits, the interest income is taxable in the hands of the person whose PAN is linked to the FD (typically the first holder).

If the FD is opened in the name of husband and wife, and the husband is the first holder, the interest will be taxed in the husband's hands unless proven otherwise (such as in the case of income splitting for legitimate reasons).

 

4. Taxation on Premature Withdrawal

 

If you withdraw your FD before maturity, the interest earned is still taxable in the year of withdrawal. The tax treatment is the same as on regular FD interest.

Premature withdrawal may also incur a penalty (typically 0.5% to 1% lower than the contracted rate), which reduces the overall interest, but it does not affect the taxability. 

5. How to Avoid TDS Deduction

 

If your total income is below the taxable limit and you don’t want TDS to be deducted, you can submit Form 15G (for non-senior citizens) or Form 15H (for senior citizens) to the bank at the beginning of the financial year. This form declares that your total income is below the taxable threshold, and no TDS should be deducted.