Tax saving FD: the safest 80C option with a hidden tax cost
A 5-year tax saving FD is the go-to choice for conservative investors who want guaranteed returns, capital safety, and a Section 80C deduction — all in one. But the interest tax bill on maturity can quietly eat into returns, especially for investors in the 30% slab.
The true post-tax return comparison
For a 30% slab taxpayer investing ₹1.5 lakh:
| Instrument | Pre-tax return | Post-tax return | Lock-in |
|---|---|---|---|
| Tax saving FD (7.35%) | 7.35% | ~5.1% | 5 years |
| NSC (7.7%) | 7.7% | ~5.4% | 5 years |
| PPF (7.1%) | 7.1% | 7.1% (tax-free) | 15 years |
| ELSS (12% est.) | 12% | ~10.8%* | 3 years |
*ELSS LTCG at 12.5% on gains above ₹1.25L — most investors pay little or no LTCG
For investors in the 30% bracket, the tax saving FD's post-tax return is the lowest among 80C options. PPF and ELSS are significantly better on an after-tax basis.
When tax saving FD makes sense
- Capital protection is paramount — your business may need this money; equity risk isn't acceptable
- Short planning horizon — if you're investing just for the current year's 80C benefit and want certainty
- Senior citizens — extra 0.5% on FD rates (some banks offer 7.5–7.75% for seniors) + ₹50,000 80TTB deduction on interest
- Already maxed ELSS and PPF — with ₹1.5L cap, some investors use FD for the remaining 80C allocation
Best tax saving FD rates (general public, 2025)
| Bank | Rate | Senior citizen rate |
|---|---|---|
| SBI 5-year TD | 6.5% | 7.5% |
| HDFC 5yr Tax Saver | 7.35% | 7.85% |
| ICICI 5yr Tax Saver | 7.0% | 7.5% |
| Axis 5yr Tax Saver | 7.5% | 7.75% |
| Post Office 5yr TD | 7.5% | 7.5% (no extra) |