Tax-Saving FDs vs regular FDs: Where should you invest in May 2026?

Fixed deposits (FDs) continue to remain a preferred investment option for conservative investors seeking stable and predictable returns. In May 2026, leading commercial banks are offering FD interest rates ranging from around 6.1% to 7.1% for general depositors, with senior citizens typically earning an additional 50 basis points. This makes FDs an attractive avenue for those prioritising capital protection over higher-risk instruments like equities and mutual funds.

Among public sector banks, State Bank of India (SBI) offers up to 6.05% for general investors and 7.05% for senior citizens on callable deposits up to ₹3 crore, including benefits under its ‘We-care’ scheme. Similarly, major banks such as Bank of Baroda, Punjab National Bank, HDFC Bank, and ICICI Bank are offering approximately 6.25%–6.45% for regular customers and 6.75%–6.95% for senior citizens on three-year deposits.

Tax-saving fixed deposits, which come with a mandatory five-year lock-in, remain popular for investors looking to combine returns with tax benefits under Section 80C. Interest rates in this category range from about 5.0% to 7.9% for general depositors, with senior citizens earning up to 8.25% in select banks. Small finance banks such as Suryoday and Ujjivan are currently offering some of the highest rates, while private banks like ICICI, Axis, and IDFC First offer returns in the 6.5%–7.0% range.

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Public sector banks, including SBI and Indian Overseas Bank, offer comparatively moderate returns of around 6.0%–6.1%, while the Post Office 5-year Time Deposit scheme provides a competitive 7.5%. However, investors must note that interest earned on FDs is taxable as per their income slab, and tax is deducted at source if interest exceeds ₹10,000 annually.

Other bank FDs

Bank fixed deposit (FD) rates across tenures of one, three, and five years remain in a relatively narrow band, with senior citizens continuing to earn a premium over general depositors. As of May 2026, leading banks such as HDFC Bank and ICICI Bank offer around 6.75% for one-year deposits and up to 7.10% for five-year tenures to senior citizens.

State Bank of India (SBI) offers slightly lower rates, ranging from 6.75% for one year to 7.05% for five years. Other public sector banks like Bank of Baroda and Punjab National Bank (PNB) offer comparable returns, typically between 6.60% and 6.90% for senior citizens.

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For the general public, FD rates are about 50 basis points lower. One-year deposits fetch around 6.10%–6.25%, while three-year tenures offer 6.25%–6.45%. Five-year FDs range between 6.05% and 6.50%, depending on the bank. Overall, PSU bank rates stand at 6.60%–7.05% for senior citizens and 6.05%–6.30% for others in long-term deposits.

FD returns are compounded quarterly, meaning interest is added every three months and starts earning returns itself. For instance, a ₹1 lakh deposit at 6.25% for one year yields about ₹1.06 lakh, while a three-year deposit at 6.8% grows to roughly ₹1.22 lakh. Over five years at 6.5%, the maturity value rises to about ₹1.38 lakh, highlighting the impact of compounding over longer tenures.

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