NSC vs Fixed Deposit in India: Key Differences You Should Know
National Savings Certificate (NSC) is an investment drive that helps boost savings along with tax benefits. On the other hand &, fixed deposits offer higher returns than savings accounts. Before comparing both Investment Plans, let us first underst& what they mean.
What is the National Savings Certificate (NSC)?
The National Pension Scheme (NPS) is a voluntary contribution pension scheme designed for employees from the public, private, or unorganised sectors. Under this plan, the amount should be invested at regular intervals during employment, some percentage of which can be taken out after retirement. The remaining amount from the corpus can be received after retirement, just like the monthly pension amount.
What is the Fixed Deposit (FD)
A fixed deposit is a type of savings plan issued by financial institutions or banks, where funds are deposited for a certain period of time, ranging from a few days to several years.
In return, banks pay investors the maturity amount along with a specified interest rate, which is normally higher than that on a savings plan. They are low-risk investments with guaranteed returns.
Features & Benefits of National Savings Certificate (NSC)
Provided are the features & benefits of the National Savings Certificate:
- Types
There are two types of NSC certificates, namely Type VIII & Type IX; at the moment, only Type IX is open for subscription.
- Maturity Period
The maturity period for the NSC is 5 years.
- Fixed Income
This scheme provides a guaranteed return of 7.7%, which is usually considered to be higher than fixed deposits.
- .Tax Saving
As NSC is a government-backed scheme, one can claim a maximum of INR 1,50,000 u/s 80C of the Income Tax Act, 1961.
- Power of Compounding
The interest earned is compounded & reinvested on its own.
- Smart Small
The minimum amount of deposit is INR 1000 initially, which can be increased later on.
- Interest Rate
At present, the interest rate for quarter 2 of the financial year 2024-2024 is 7.7% per annum, which is revised quarterly.
- Premature Withdrawal
No early exit from the scheme is allowed. However, it may be accepted in some exceptional cases, such as a court order or an investor’s death.
- Access
This scheme can be bought from any post office once the documents are submitted & KYC has been completed.
- Collateral
It can also be accepted as collateral by banks or NBFCs to get secured loans.
- Nomination
The investor must choose a nominee from their family members to inherit the amount in case of any unforeseen circumstances.
- Corpus after Maturity
The corpus amount would be received upon maturity. As NSC does not attract any TDS on payouts, the subscriber should pay the tax.
Features & Benefits of Fixed Deposits (FDs)
Provided are the features & benefits of the Fixed Deposits:
- Fixed deposits offer guaranteed returns with high rates in comparison to a savings account.
- Tax savings payouts come with a lock-in period of 5 years, under which tax exemption can be availed up to a maximum of INR 1.5 lakhs.
- Fixed deposits get renewed automatically on maturity without any need to visit a bank.
- Multiple fixed deposits can be opened at different banks, allowing you to save funds for a certain period.
- These deposits are easily accessible both in private & public banks. Internet banking facilities can also be used to open a fixed deposit account.
- It comes with a flexible tenure ranging from 7 days to 10 years, which makes it suitable for both short-term & Long Term Investment goals.
Differences between NSC & FDs
Provided are the differences between NSC & FDs:
| Basis of Difference | NSC | FDs |
| Best suits | Who prefers long-term savings & capital security | Flexibility & liquidity |
| Issuer | Govt. of India (Post Office) | NBFCs, Post offices, & banks |
| Tax Benefit | Tax deductions are available u/s 80C of the Income Tax Act, 1961, for a maximum of INR 1,50,000 for the premium paid. | Only in case of tax savings, FDs with a 5-year lock-in period |
| Risk | Risk-free due to being backed by the government | Low risk |
| Interest Rates | Fixed rate of interest, i.e. 7.7% per annum | Varies bank to bank, generally 6-7.5% |
| Investment Tenure | 5 years | 7 days to 10 years |
| Liquidity | Low | High |
| Interest payout | At the time they mature | Monthly, quarterly, or at the time they mature |
| Premature withdrawal | Not allowed, under exceptional circumstances | Allowed, at an added penalty cost |
NSC or FDs – Which one is Better?
The selection between NSC & FD depends on your financial needs. One should consider the fact that both NSC & FD have their own pros & cons.
NSC: NSC is a government-backed investment plan that offers a fixed rate of return & financial security. Hence, this plan best suits those who are reluctant to take risks & want to earn a steady flow of income once the lock-in period of 5 years is completed.
FD:
FDs offer flexibility in choosing tenure, ranging from 7 days to 10 years. It allows premature withdrawal of funds in case of need, but at a cost of a small penalty, hence considered flexible & liquid.
On a final note, both plans are covered under section 80C, considered to be safe, but are not liquid, & are meant for conservative investors. Both of them have a lock-in period of 5 years & are hence considered to be long-term investment plans. Choosing one amongst them will depend upon financial objectives, investment horizon, & tax savings requirements.
Hence, if your objective is to avail tax savings & capital security, opt for NSC. &, if you prefer flexibility & liquidity, opt for FD.
