5-year FDs: Interest rate comparison & tips on investing

Aashi Mishra
Created By Aashi Mishra
On Mar 12, 2018
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5-year FDs: Interest rate comparison & tips on investing

Whether you are a salaried individual or a senior citizen, the thought of investing in a Fixed Deposit (FD), term deposit or time deposit, would have crossed your mind at some point of time. You might be wondering if putting your money in such a deposit is really worth it, considering the number of options available as far as investments are concerned.
Before we move on, first let us understand what an FD is. A term deposit is a type of account through which an investor puts in a fixed amount of money for a chosen duration, for which the bank or financial institution where the money is invested, pays a rate of interest. In other words, you get paid a certain percentage for giving your money to a bank for a specific period of time.
There are numerous options when it comes to FDs and probably the most popular among these is the 5-year FD that gives investors a tax benefit. Those who put their money in this type of scheme can get a tax exemption of up to Rs.1.5 lakh under Section 80C of the Income Tax Act.

Let us take a look at the interest rates paid by some of the top banks in India for 5-year FDs:

The highest rate of interest paid in this slab is by Yes Bank, where the gain rate is 6.75% p.a. for regular individuals and 7.25% p.a. for senior citizens, making it a very profitable investment for those who fall in this age bracket.

On the other hand, SBI, HDFC and Kotak Mahindra Bank offers a bank rate of 6.00% p.a. and 6.50% p.a. for senior citizens. ICICI Bank pays an interest rate of 6.50% p.a for regular term deposit accounts and 7.00% for senior citizens.

Another lucrative option for 5-year term deposits is Axis Bank, where the rate of return on regular deposits is 6.90% p.a. and 7.40% p.a. for pensioners.

The highest rate of interest paid in this slab is by Yes Bank, where the gain rate is 6.75% p.a. for regular individuals and 7.25% p.a. for senior citizens, making it a very profitable investment for those who fall in this age bracket.

On the other hand, SBI, HDFC and Kotak Mahindra Bank offers a bank rate of 6.00% p.a. and 6.50% p.a. for senior citizens. ICICI Bank pays an interest rate of 6.50% p.a for regular term deposit accounts and 7.00% for senior citizens.

Another lucrative option for 5-year term deposits is Axis Bank, where the rate of return on regular deposits is 6.90% p.a. and 7.40% p.a. for pensioners.

Benefits of investing in tax saving FDs:

  • Those who have funds in their savings account and want it put away safely for future use can opt for an FD
  • A 5-year FD is a type of short to medium-term investment to put away money, making it a very good way to save
  • A tax benefit of Rs.1,50,000 can be obtained for a financial year
  • The interest paid is more than what you will get in a traditional savings account
  • The risk involved is very minimal and the rate of return is assured unlike other type of investments
  • Helps encourage the habit of saving money
  • Good option for salaried individuals who do not have the acumen to take risk
  • It is a good way to balance out the risk-element that may arise from the other high-risk investments that you may hold
  • Helps you save taxes
  • Valuable add to a financial portfolio even if you have other investments
  • Senior citizens get a higher rate of interest in all FD schemes across banks in India


Unlike other regular term deposits, 5-year FDs have a mandatory lock-in period of 5 years. So, before putting in your money, keep this factor in mind. If investors do want to go with this lock-in period, they also go for non-tax FDs, or regular FDs. When it comes to regular term deposits, there is premature withdrawal facility and a number of other benefits. Lets us take a look at them one by one.

When it comes to regular FDs, the tenure range is very flexible and you can choose one as per your convenience. Typically, the minimum investment duration is 7 days, while the maximum period is 10 years. A depositor can choose any tenure in this range from 1 year, 2 years, 3 years, 4 years, 5 years, 6 years and the like. Some banks also offer a combination of tenures. However, this number may vary from bank to bank.

The other benefit is that this type of FD can be used as a collateral for a loan or an overdraft. So, in case of any financial need, there is no need to break the FD, you can still continue to earn a certain rate of return and also take a loan on it. Apart from this, the interest rate paid on these loans are much lesser than what is charged for your usual loan. This makes it more economical to take a loan against a fixed deposit.

Another plus point when it comes to term deposits is that you can also use it as a collateral to apply for a credit card. Those who do not have a credit score at all, those who have just begin earning or those who do not meet the income criteria, can apply for a credit card against their respective fixed deposit. This way, a term deposit can offer the holder of the same, a number of additional benefits. This is why, many people in India still choose to go for the traditional fixed deposit scheme.
On the whole, having at least one FD in your kitty is definitely a good decision. Not only will it help you save money for the rainy days, it will also offer tax benefit. And even you take up a non-tax saving term deposit, the advantages are numerous. The tip to keep in mind while choosing a fixed deposit is to do a comparison of all tax saving interest rates and choose the best one. Also, do a background research on the payment history of the bank you are putting the money in.

To sum it up, do not overthink, just go for a FD. It can be one among the other investments in your financial portfolio.