Special Bank Term Deposit Scheme
Also written Special Bank Term Deposit · SBTD
A five-year, tax-saving bank term deposit eligible for a Section 80C deduction, with no premature withdrawal and no loan against it allowed.
In plain language
Most bank deposits trade a little safety for a little flexibility. The Special Bank Term Deposit Scheme trades away the flexibility entirely, in exchange for a tax break.
The workbook describes it in four short lines: it is a tax-saving scheme available with banks, it earns relief under Section 80C of the Income Tax Act, 1961, it locks your money in for five years, and during that time you cannot withdraw it early or borrow against it.
Compare that with an ordinary Fixed Deposit, where the workbook says banks will lend you 75 to 90 per cent of the deposit amount. None of that applies here. This deposit is sealed.
How it works
The workbook's own feature list, as a table of what the product does and does not allow:
| Feature | This product |
|---|---|
| Tax treatment | Tax-saving scheme; relief under Section 80C |
| Term | Five-year lock-in |
| Premature withdrawal | Not allowed |
| Loan against the deposit | Not allowed |
The workbook does not give an interest rate or a minimum deposit amount for this product in this booklet — only the tax treatment and the two things you give up to get it. Section 80C itself lists this deposit alongside life insurance, provident fund, ELSS and NSC as one of the instruments whose combined contribution is capped at the same Rs 1,50,000 aggregate limit.
A worked example
The interest rate is illustrative — the workbook gives no rate for this product in this booklet.
Lakshmi, in the 30% tax bracket, puts Rs 1,50,000 into a Special Bank Term Deposit Scheme to use up her Section 80C limit for the year.
Tax saved this year = 1,50,000 × 30% = Rs 45,000
Eighteen months later her son's school fees are due and she is short by Rs 60,000. She cannot touch this deposit — no premature withdrawal, no loan against it — so she has to find the money elsewhere, perhaps by breaking an ordinary FD instead, which the workbook confirms can be pledged for a loan of 75 to 90 per cent of its value. The tax saving she locked in eighteen months earlier came with a five-year cost she has to plan around separately.
Why NISM asks about it
Chapter 4 (Savings Related Products) lists the Special Bank Term Deposit Scheme in its table of bank deposit types, immediately after the Recurring Deposit; Chapter 10's Section 80C table repeats it as an eligible instrument. Expect a question on the five-year lock-in and on whether premature withdrawal or a loan is possible against it — both are no.
Common exam traps
- No premature withdrawal and no loan — this is the one product in the whole deposit table with both restrictions stated together. An ordinary FD permits a loan of 75–90% of its value; this scheme permits none.
- The lock-in is five years. This is a bank deposit, not a mutual fund scheme.
- The tax benefit is under Section 80C, sharing the same Rs 1,50,000 aggregate ceiling as every other 80C instrument — money here can crowd out the deduction available for PF, insurance or ELSS.
- Do not confuse this with an ordinary tax-free bond or with the National Savings Certificate; the workbook keeps the bank-deposit version and the post-office instruments in separate tables.
Check yourself
1.Which of the following describes the Special Bank Term Deposit Scheme?
- a)A deposit with a 3 year lock-in that permits loans against it
- b)A tax savings scheme giving relief under Section 80C, with a 5 year lock-in and no premature withdrawal or loan allowed
- c)A deposit available only to senior citizens
- d)A deposit that can be broken at any time with a small penalty
Show the answer
Answer: (b) A tax savings scheme giving relief under Section 80C, with a 5 year lock-in and no premature withdrawal or loan allowed
The chapter gives four features: "Tax savings scheme available with banks. Relief under SECTION 80C of the Income Tax Act, 1961. Term deposit with 5 YEARS LOCK IN PERIOD. NO PREMATURE WITHDRAWAL/LOAN ALLOWED." Both doors are closed, which is the whole contrast with an ordinary fixed deposit — where you can normally break the deposit, or borrow 75 to 90% against it. The tax relief is bought at the price of losing both escape routes, which makes this product suitable only for money you are confident you will not need for five years. Putting an emergency fund here is a serious planning error, and it is the mirror image of the error Chapter 3 warns against — a product that "may seem tailor-made for specific needs, but they may not be actually useful for one's portfolio."
2.A businessman needs ₹3,00,000 for four months and holds a ₹5,00,000 fixed deposit maturing in two years. What does the chapter suggest as an alternative to breaking the deposit?
- a)Opening a Special Bank Term Deposit Scheme and borrowing against that
- b)Taking a loan against the fixed deposit, available up to 75 to 90 per cent of the deposit amount, so the deposit keeps running
- c)Converting the fixed deposit into a recurring deposit
- d)Withdrawing from a payment bank account instead
Show the answer
Answer: (b) Taking a loan against the fixed deposit, available up to 75 to 90 per cent of the deposit amount, so the deposit keeps running
The chapter states: "It is also possible to get LOANS FROM BANKS AGAINST FIXED DEPOSITS UP TO 75 TO 90% of the deposit amount." Seventy-five per cent of ₹5,00,000 is ₹3,75,000, so ₹3,00,000 is comfortably available. The comparison is decisive for a short, known need: breaking the deposit means the bank typically pays a reduced rate for the period actually run and may levy a penalty, and the deposit must then be rebuilt from zero; borrowing means the FD keeps running and keeps earning while interest is paid for four months only. The judgement reverses if the need is long or open-ended, or if it exceeds the borrowing limit. Option (a) fails on the product's own terms — the Special Bank Term Deposit Scheme allows "no premature withdrawal/loan" at all during its five-year lock-in. The general rule worth carrying: before breaking any long-term asset, ask whether you can borrow against it instead.
3.Which statement correctly distinguishes NPS Tier I from Tier II?
- a)A bank account is mandatory for Tier I but not for Tier II
- b)Tier I is the mandatory retirement account with restricted withdrawal and tax benefits; Tier II is a voluntary saving account with free withdrawal and no tax benefits, and requires an active Tier I account
- c)Funds can be transferred from Tier I to Tier II at any time
- d)Both tiers offer identical tax benefits
Show the answer
Answer: (b) Tier I is the mandatory retirement account with restricted withdrawal and tax benefits; Tier II is a voluntary saving account with free withdrawal and no tax benefits, and requires an active Tier I account
The chapter's table gives five rows. Eligibility — Tier I: "All citizens of India"; Tier II: "Anyone with an active Tier I Account." Bank account — Tier I: "Not mandatory"; Tier II: "Mandatory" (option (a) reverses this, a favourite distractor). Liquidity — Tier I: "Certain portion is allowed to be withdrawn from pension account subject to prescribed conditions"; Tier II: "Subscriber is free to withdraw savings from this account whenever the subscriber wants to." Fund transfer — Tier I: "Not possible"; Tier II: "Funds can be transferred from Tier II to Tier I account", which disposes of option (c). Tax benefit — Tier I eligible, Tier II not eligible. Notice the design: restriction and tax benefit travel together, exactly as in Chapter 4's Special Bank Term Deposit Scheme, and every structural nudge points money towards retirement.
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- LiquidityThe degree of ease with which you can turn an investment back into cash at a fair value — one of the three pillars of investing, alongside safety and return.
- Fixed DepositMoney placed with a bank for a fixed term at an agreed rate of interest. Safe and simple, but the interest is taxable, and TDS applies once interest crosses a stipulated amount.
- Recurring DepositA bank deposit where you put in a fixed amount every month for a set term. It earns more than a savings account, and TDS applies beyond a stipulated amount of interest.
- Section 80CThe income-tax deduction for money put into life insurance, provident fund, ELSS, five-year bank deposits, NPS Tier 1, NSC and home-loan principal, capped in aggregate at Rs 1,50,000 a year.