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NSC Schemes Vs. Fixed Deposits: Which One Is Better?
Reviewed by: Fibe Research Team
- Published on: 4 Dec 2024
Reviewed by: Fibe Research Team
Investments are a smart solution for long-term wealth generation. Choosing a secure and easy-to-avail option can help you create a more balanced portfolio. Two options you can consider are the National Savings Certificate and fixed deposits. When you compare NSC and FDs, you may find that they both have several advantages and limitations. This is why choosing between them can be a tough decision.
Only after evaluating your investment objectives and their characteristics can you select the most appropriate option for yourself. Continue reading to discover more about the variations between the National Savings Certificate and fixed deposits.
This is a fixed-income scheme backed by the government. It is designed for small to mid-income investors looking for long-term savings and secure returns. It comes with a 5-year lock-in period and a pre-determined interest rate. You can start investment with a nominal amount of ₹100.
The following is the eligibility for NSC schemes, which you must know for comparison with FDs:
The following entities cannot apply for NSC:
As you may know, it is a secure savings option that requires a lump sum investment. You can choose a preferred tenure according to which issuer gives you an interest rate. Most issuers charge a penalty on withdrawal before completion of tenure. Here’s a list of eligible entities who can book an FD:
Here are the differences between NSC and FD schemes:
| Topics | NSC | FD |
|---|---|---|
| Interest rate | 7.7% at present | Varies between 2.50% and 9% |
| Compounding frequency | Yearly | Quarterly in general |
| Minimum Investment Amount | ₹1,000 | ₹1,000 to ₹10,000, depending on the issuer |
Maximum Investment Amount | No upper limit for investment | Depends on the bank or issuer, though most don’t. |
| Lock-in Period | Minimum 5 years | 7 days to 10 years |
| Risk appetite | Low risk | Low to moderate risk |
| Tax Benefits | Qualifies for tax deduction under 80C | 5-year tax-saver FDs offer 80C deduction |
| Premature Penalty | It has a penalty for premature withdrawal | Most banks impose penalties on premature withdrawals |
Assume you invested ₹1 lakh in an NSC and fixed deposit for 5 years. The following example shows your returns after 5 years.
Note: The example above does not take the tax liability into account. Ensure you calculate your potential tax to calculate your actual returns.
Both have their benefits and drawbacks, and here’s an overview to help you choose more efficiently.
Based on your requirements, you can invest in NSC or a fixed deposit or both.
Also Read: Term Deposit vs Fixed Deposit
The interest in NSC schemes is reinvested through the lock-in period, so you only need to pay tax on the final year’s interest. Additionally, you can claim deductions under section 80C of the Income Tax Act. On the other hand, FD interests are considered earnings and are taxed as per your income tax slab. FDs also offer the same 80C benefit when you go for the five-year tax-saver option.
The answer to this question completely depends on your investment objectives and post-tax returns. Usually, an FD is better if you want to invest for fewer than 5 years. If not, NSC may be a better option. Check your returns before you decide.
Premature withdrawal is simple when it comes to FDs, though an interest penalty applies in most cases. However, doing so is not easy in NSC, and it is only allowed in exceptional cases.
