As per the RBI Governor, people don’t want to keep their money in banks, as not many banks are offering more than 7% interest on FDs.

Despite recent interest rate corrections in the market, fixed deposits (FDs) remain a reliable savings option, with 12 Indian banks still offering interest rates of up to 8.5%, even as many others have begun reducing rates following the RBI’s repo rate cut in June 2025.

FD Rates Under Pressure After RBI Repo Rate Cut

The Reserve Bank of India slashed the repo rate in June 2025, prompting several banks to trim interest rates on both fixed deposits (FDs) and savings accounts. However, some banks, particularly smaller private and small finance banks continue to offer higher FD returns to attract depositors.

For investors seeking stable and higher returns amid market fluctuations, FDs at these banks are worth considering.

List of Banks Offering 7%–8.5% Interest on FDs

While major public sector banks have reduced their FD rates, select private and small finance banks (SFBs) are offering returns as high as 8.5% for regular depositors. Below is a breakdown of banks and their highest available FD rates as of July 2025:

Bank Name	Type	Highest Rate & Tenure	1-Year FD	3-Year FD	5-Year FD
Equitas SFB	Small Finance Bank	7.60% for 888 days	7.25%	7.25%	7.00%
ESAF SFB	Small Finance Bank	7.60% for 444 days	4.75%	6.00%	5.75%
Jana SFB	Small Finance Bank	8.20% for 5 years	7.50%	7.75%	8.20%
slice SFB	Small Finance Bank	8.50% for 18M 1D to 18M 2D	6.75%	8.25%	7.75%
Suryoday SFB	Small Finance Bank	8.40% for 5 years	7.50%	8.15%	8.40%
Ujjivan SFB	Small Finance Bank	7.75% for 2 years	7.65%	7.20%	7.20%
Unity SFB	Small Finance Bank	7.75% for 1001 days	6.50%	7.25%	7.25%
Utkarsh SFB	Small Finance Bank	8.00% for 2–3 years	6.25%	8.00%	7.50%
Bandhan Bank	Private Sector Bank	7.40% for 2Y to <3Y	7.25%	7.25%	5.85%
CSB Bank	Private Sector Bank	7.40% for 13 months	5.00%	5.75%	5.75%
DCB Bank	Private Sector Bank	7.40% for 25–26 months	7.00%	7.00%	7.00%
Indian Bank	Public Sector Bank	6.90% for 444 days	6.10%	6.25%	6.00%

Note: Rates vary based on tenure and customer category (senior citizens often earn an additional 0.50%)

What is the Tax on FD Interest?

When you invest in an FD, the bank pays interest, but it isn’t tax-free. If your total annual FD interest crosses a certain threshold, the bank deducts Tax Deducted at Source (TDS).

“Interest earned on FDs is taxable, with tax deducted at source (TDS) if it exceeds a specified limit,” said Adhil Shetty, CEO of BankBazaar.

Let’s take an example:

Arun invested ₹10 lakh in an FD offering 7.5% interest annually.
His annual interest = ₹10,00,000 × 7.5% = ₹75,000

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Since this exceeds the TDS threshold, 10% TDS will be deducted on ₹75,000, i.e., ₹7,500.
He will receive ₹67,500 as interest post-TDS.

New TDS Exemption Limits in Budget 2025

Category	Old Limit	New Limit
General Depositors	₹40,000	₹50,000
Senior Citizens	₹50,000	₹1,00,000

So, if Arun is a senior citizen, he wouldn't be taxed unless interest exceeds ₹1 lakh in a financial year.

How to Invest in an FD?

Investing everything in a long-term FD may yield the highest interest, but you also need liquidity for emergencies.

Here’s a smart strategy to get the highest returns from an FD:

Priya has ₹6 lakh to invest. She decides to split it across 3 different tenures:

FD Amount	Tenure	Interest Rate (Assumed)	Maturity Amount
₹2 lakh	1 year	7%	₹2,14,000
₹2 lakh	3 years	7.5%	₹2,48,500
₹2 lakh	5 years	8.25%	₹3,00,500

This method, known as FD laddering, offers:

Liquidity after 1 year
Better interest in the medium and long term
Reduced reinvestment risk as FDs mature at different intervals

How to Apply for TDS Exemption on FDs?

If your annual income is below ₹2.5 lakh, you can avoid TDS deduction by submitting Form 15G (or Form 15H for senior citizens) to your bank.

Steps to apply:

Download Form 15G from your bank’s website or collect it from the branch.
Fill in PAN and income details correctly.
Submit the form at the start of the financial year to avoid auto-deduction.

This ensures no tax is deducted at source if your income is within the exemption limit.

Conclusion

Fixed deposits continue to be a safe and rewarding investment choice in 2025, especially with select banks offering rates as high as 8.5%. However, investors must weigh interest returns, tax impact, and liquidity needs before locking in funds.

Strategies like FD laddering and using Form 15G/H for tax exemption can help you make the most of your savings in a rising-interest or even post-rate-cut environment.

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