(A) Tax Exemption :  For FY 2014-15 ,  interest earned upto Rs 10,000 in saving bank accounts has been exempted from Tax.    However, interest income  from other kind of deposits (like from  term deposits / fixed deposits /  recurring deposits ) are not now  exempted from tax.  Thus, feel free to keep to keep upto Rs 2 lakhs in Saving Bank accounts as most of the banks pay 4% interest in saving bank accounts.  Even if you keep high amount in Saving Bank account, there will be no deduction of TDS but you will need to pay tax for the interest earning in Saving Bank accounts for the amount over Rs 10,000/-

(B) Deduction of TDS  : No TDS is deducted by banks on interest earned in Saving Bank accounts and Recurring Deposit accounts.  Interest on fixed deposits is subject to deduction of tax as per rules. However,   income from interest accrued / paid (on Saving and Recurring Deposits)  are taxable, (except as explained above, from FY 2012-13, interest income upto Rs10,000/- earned on Saving Bank deposits has been exempted from income tax].    You should remember no interest income from fixed deposits or recurring deposits  is exempted from income tax.    As explained above, TDS is deductible on interest earned on Fixed Deposits / Term deposits.   However, in certain conditions, no TDS  is deducted even on the interest earned on fixed deposits, e.g. (a) if the total interest earned on such deposit in a financial year is upto Rs.10,000/-.     Remember, that even if  No TDS is deducted on your fixed deposit interest earned, you still have to include this income in your tax return and pay tax. 

(C) Rules for Deduction of TDS on interest paid / accrued :   As per present income tax guidelines,  banks are required to deduct tax at source (TDS) on deposits if  the total interest earned on all your fixed deposits in a bank (at all branches of the bank) is more  than Rs.10,000 in a financial year. (as per these guidelines even if a fixed deposit is in the name of a minor  TDS is deducted).  However, the depositors can claim the credit for such TDS in their income tax returns. (Now a days such deducted TDS is reflected in AS26 which can be downloaded from income tax site.    (in case of minors, this credit for TDS can be claimed by the person who manages the minor's income).

Remember, now a days  as and when a bank pays an interest on the fixed deposits, it checks whether the account is exempted from TDS.   If it is not exempted, then TDS is deducted.  You should also remember that  TDS is deducted even on interest accrued (but not yet paid) at the end of the financial year i.e. 31st March every year.