Bank Fixed Deposit: You may get only 5% post-tax return from FDs offering 7% interest

fixed deposit 5


While investing in a bank fixed deposit account is considered safe and preferred by many, the post-tax return from such investment is generally lower than the interest rate offered by the bank, especially for individuals having multiple sources of income.

The post-tax return on FD is low because 10% TDS is deducted from the income obtained from a fixed deposit. Such income is added to the total income of the person and taxed as per his/her tax slab.

Investors, who are already in higher taxable income brackets, cannot claim the TDS back by filing ITR. This makes the total post-tax return from Fixed Deposits low.

Also Read: Tax Saver Fixed Deposit: Where senior citizens and others can get better than SBI, HDFC Bank rates

According to FundsIndia’s Wealth Conversation Report May 2023, the average bank FD rates across SBI, PNB, HDFC Bank and ICICI Bank for a 6-month deposit is 5% but the post-tax return works out to be only 3.49%. Similarly, for deposits of 5-year tenor in these banks, the average interest rate is around 6.75% but the post-tax return works out to be only 4.9%.

For FDs of 3-year tenor, the average interest rate is 6.88% while the post-tax return is just 4.91%. Similarly, for FDs of 2-year tenor in these four banks, the average rate is 6.98% but the post-tax return works out to be online 4.93%.

Fixed Deposit post tax return
Source: FundsIndia Wealth Conversations May 2023

The low post-tax return from FD is also one of the reasons why experts suggest that investors should allocate some parts of their investment portfolio towards market-linked products such as mutual funds for higher returns. Even mutual fund income is taxed but the generally higher long-term return from such schemes compensates for the fall in income due to taxation.

Also Read: Fixed Deposit interest rate for senior citizens jumps again: How much should you invest in a bank?

However, FDs have several advantages, especially for investors who do not have multiple sources of income and are earning lower than the basic exemption limits under old and new tax regimes. Several banks have also recently hiked fixed deposit interest rates. Senior Citizen depositors can now get up to 9.6% interest with small finance banks while others can get up to 9.1% interest.

(Disclaimer: The above content is for information purposes only. Please consult your financial advisor before investing)


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