Tax-saving fixed deposit interest rate for senior citizens in May 2026: Govt vs Private banks

A tax-saving fixed deposit (FD) is a specific kind of deposit scheme that allows deductions of up to ₹1.5 lakh per year under Section 80C of Income-tax Act, 1961 (Section 123 of Income-tax Act, 2025), which eventually reduces the taxable income. In the current scenario, the instrument is relevant only if one chooses the old tax regime. Under the new tax regime (which is set by default), Section 80C deductions are not allowed, implying that these FDs will offer no tax advantage.

Eligibility: Resident individuals as well as Hindu Undivided Families (HUFs) are eligible to open a tax-saving FD. On the other hand, these FDs cannot be opened by firms, companies, trusts etc.

Mandatory lock-in: These FDs come with a pre-defined lock-in term of 5 years. Further, premature withdrawal is not allowed in these deposits before maturity.

Investment limit: Minimum investment ranges between ₹100-₹10,000 depending on the bank, while the maximum investment that can be made in a fiscal year stands at ₹1.5 lakh.

Interest and taxation: Interest is mostly compounded quarterly and is taxed under the head ‘income from other sources’ as per the individual investor’s slab rate.

Source: Bank websites

So, tax-saving FDs at public sector banks can offer a maximum rate of interest of 6.3% for general citizens and 7.05% to senior citizens.

Source: Bank websites

Private banks in comparison to the public sector banks offer a higher rate of interest on tax-saving FDs, with 6.65% being offered to the general public and maximum 7.2% to senior citizens.

FAQs related to tax-saving FD

1. How can I open a tax-saving FD? You can open a tax-saving FD with any bank. The minimum deposit is ₹ 100, and the maximum investment is ₹1.5 lakh in a year. The account can be opened online or by visiting the bank branch.

2. Can we break the tax-saving FD? Tax-saving FDs come with a minimum lock-in period of 5 years. Premature withdrawals before the date of maturity are not allowed for this kind of tax-saving term deposit. However, in the case of death, prepayment is allowed as per the bank's norms and procedures.

3. Can I have multiple tax-saving FDs? Yes, you can open multiple tax-saving FDs under Section 80C of the Income Tax Act. These FDs together will help you claim a maximum deduction of ₹1.5 lakhs annually.