Tax-saving fixed deposits (FDs), a popular investment avenue for conservative savers looking to reduce their tax liability, are currently offering interest rates of up to 8% in 2026, according to data compiled by Paisabazaar.

Eligible under Section 80C of the Income Tax Act, tax-saving FDs allow investors to claim deductions of up to ₹1.5 lakh in a financial year while providing guaranteed returns over a five-year lock-in period.

Unlike regular fixed deposits, tax-saving FDs cannot be withdrawn prematurely and loans cannot be availed against them. The interest rate remains fixed throughout the tenure, offering certainty of returns to risk-averse investors.

Small finance banks lead the charts

Among all banks, Suryoday Small Finance Bank is offering the highest interest rate of 8% for both general and senior citizens.

Jana Small Finance Bank follows closely with 7.77%, while Ujjivan Small Finance Bank offers 7.20% to general customers and 7.70% to senior citizens.

Other lenders offering attractive rates include DCB Bank and SBM Bank India, both providing 7% to regular depositors. Senior citizens at SBM Bank India can earn as much as 7.5%.

According to the data, the top tax-saving FD rates for general citizens are:

Suryoday Small Finance Bank – 8.00%
Jana Small Finance Bank – 7.77%
Ujjivan Small Finance Bank – 7.20%
DCB Bank – 7.00%
SBM Bank India – 7.00%
Private banks offer up to 7.2% for seniors

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Among private sector banks, IDFC FIRST Bank and Jammu & Kashmir Bank are offering 6.60% to general depositors and 7.10% to senior citizens.

ICICI Bank offers 6.50% and 7.10%, while Axis Bank provides 6.45% to regular customers and 7.20% to senior citizens.

HDFC Bank and Federal Bank offer 6.40% to general citizens and 6.90% to senior citizens.

Bandhan Bank stands out among private lenders, offering 7.25% to senior citizens.

Public sector banks trail peers

Public sector banks continue to offer relatively lower rates.

Indian Overseas Bank tops the PSU category with 6.10% for regular customers and 6.60% for senior citizens.

State Bank of India offers 6.05% to general citizens and 7.05% to senior citizens.

Bank of India provides 6% for regular depositors and up to 6.90% for senior citizens.

Key features investors should know

Tax-saving FDs come with a mandatory five-year lock-in period and investments ranging from a few hundred rupees to a maximum of ₹1.5 lakh annually qualify for deductions under Section 80C.

These deposits can be opened individually or jointly, although the tax benefit is available only to the primary account holder.

However, investors should note that while the principal amount qualifies for tax deduction, the interest earned is fully taxable under the head "Income from Other Sources" according to the investor's applicable income tax slab.

Banks are also required to deduct Tax Deducted at Source (TDS) if aggregate interest income exceeds ₹40,000 in a financial year, or ₹50,000 in the case of senior citizens.

With fixed returns and tax benefits, tax-saving FDs continue to remain a preferred option for conservative investors seeking stable income and Section 80C deductions, although experts advise comparing rates across banks before locking in funds for five years.

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Published on: Jun 14, 2026 6:35 AM IST