How Do 5-Year Fixed Deposits Work? | AU Small Finance Bank
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How do 5-year Fixed Deposits Work?

    Five-year Fixed Deposits are a great way to save tax! Most people invest in FDs for 5 years, so they can reduce their taxable income.

    Let’s take a look at these deposits in detail to understand how they work and if they would be a good investment for you.

    Tax Saving FD

    A 5-year term deposit is also called a Tax-Saving FD. If you invest in one, you are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. You can claim up to a maximum of Rs.1.5 lakh.

    What are its Benefits?

    • If you invest in a tax-saver FD with AU Bank, you can earn up to 7.30% p.a. If you are a senior citizen, you’re entitled to earn 7.80% p.a. These rates are subject to change.
    • You reduce your taxable income for the first year in which you opened the fixed deposit.

    Is there a Catch?

    • You have to lock your money away for 5 years
    • The interest earned on this deposit is subject to tax
    • There is no premature withdrawal allowed on this deposit
    • You cannot make any partial withdrawal either
    • You cannot use this deposit as security for a loan
    • If it is a joint deposit, only the first deposit holder can claim tax exemption.

    Can I Renew a 5-year FD?

    Yes, you are allowed to renew your tax-saver FD once it matures.

    How many Tax Saver FDs can I hold?

    There is no limit on how many FDs you want to open. But, remember you should keep track of your FDs. Also, no matter how many FDs you hold, you can claim only up to Rs.1.5 lakh exemption per year under Section 80C.

    If your interest earning exceeds Rs.10,000 per year, you will be liable for tax deducted at source.

    How much interest can I earn on a 5-year Tax Saver Fixed Deposit?

    To explain this, let’s take a simple example. You deposit Rs.1.5 lakh in a 5-year FD, at 7.30% p.a. We need to consider how frequently interest is compounded. AU Bank, for instance, compounds interest on an annual basis. Taking all this into account, after 5 years, you will earn Rs.63348.64.

    Upon maturity, you will get back Rs.2,13,348.64.

    How do I calculate interest on 5-year fixed deposit?

    Calculating interest on FDs is now easier than before. You don’t need formulas, counting or physical calculators. Nowadays, there are many online interest calculators available. You just need to search for them and choose any one you like.

    You then need to enter the details required, such as the principal, interest rate, tenure and compounding frequency.

    The calculator will generate your results. It will tell you how much interest you can earn and how much your maturity value will be.

    This is a good investment to make, especially if you want to save tax. If you are not looking for tax saving options, you can check out tenures of other FDs that give you a higher rate of return. So, get started with your investment now, and reap the full benefits of an FD!


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