Fixed Deposits (FDs) have always been a popular choice for those seeking safe and steady returns. Right now, many banks are offering lucrative interest rates on FDs, especially for three years. With some banks giving as high as 9%, this could be the best time to lock in your money and enjoy handsome returns before rates begin to decline.
Here’s a look at the banks offering the highest interest rates on three-year FDs, along with insights on why now might be the perfect time to invest in them.
Top Banks Offering High Interest on 3-Year FDs
Several small finance banks are currently leading the pack with their interest rates. These banks typically offer higher rates than larger public and private sector banks to attract more customers. Here are the highest FD interest rates available:
- Northeast Small Finance Bank: 9.00%
- Suryoday Small Finance Bank: 8.60%
- Utkarsh Small Finance Bank: 8.50%
- Jana Small Finance Bank: 8.25%
- Unity Small Finance Bank: 8.15%
- Equitas Small Finance Bank: 8.00%
In the private banking sector, the highest rates are:
- DCB Bank: 7.55%
- RBL Bank: 7.50%
- SBM Bank India: 7.30%
- Axis Bank: 7.10%
For public sector banks, the rates are slightly lower but still attractive for those preferring government-backed institutions:
- Bank of Baroda: 7.15%
- Punjab National Bank: 7.00%
- State Bank of India (SBI): 6.75%
Why is Now the Right Time to Invest in Fixed Deposits?
In recent years, the Reserve Bank of India (RBI) has raised the repo rate several times to manage inflation. As a result, banks have been offering higher interest rates on FDs. In its most recent meeting on October 9, 2024, the RBI decided to keep the repo rate steady at 6.5%. This prolonged period of higher repo rates has created a favorable environment for FD investors.
However, these high returns on FDs may not last long. As inflation stabilizes and the RBI considers cutting rates, banks could start lowering their FD interest rates. So, now is the perfect opportunity to lock in higher rates before they drop.
How FD Interest is Taxed
While FDs offer great returns, it’s important to remember that interest earned on them is taxable. The tax is based on the total interest earned, not the principal amount. Here’s how it works:
- The interest earned is added to your total income and taxed according to your income tax slab.
- Banks deduct 10% TDS (Tax Deducted at Source) if the interest exceeds Rs. 40,000 for general citizens and Rs. 50,000 for senior citizens.
- If you don’t provide your PAN card, the bank deducts 20% TDS.
For example, if Rohan from Delhi earns Rs. 75,000 in interest from FDs, the bank will deduct 10% TDS on the amount over Rs. 40,000:
- Total interest earned: Rs. 75,000
- TDS limit: Rs. 40,000
- TDS deducted by the bank: 10% of Rs. 75,000 = Rs. 7,500
If Rohan’s total annual income is below Rs. 2.5 lakh, he can submit Form 15G to the bank to avoid TDS. Senior citizens can submit Form 15H under similar circumstances.
Conclusion
With banks offering up to 9% on fixed deposits for three years, now is an excellent time to invest. Locking in these higher rates will help you secure steady returns before rates potentially drop in the near future. Just remember to factor in the tax implications and plan your FD investments wisely.
