National Savings Certificates (NSC) and Fixed Deposits (FD) are both fixed-income investment schemes. Their advantage
is the financial security they offer. Compared to equity investments, both are safer instruments and offer decent
returns. However, it's essential to have a deeper understanding of the specific details of each investment option to
decide which one to opt for.
Differences between NSC and FD
1. Safety and security
NSCs are issued by post offices and ensure a high level of financial
security for investors as they are backed by the Government of India. Likewise, FDs are offered by banks and are
also safe investment options, owing to the banks’ robust financial standing and strict adherence to regulatory
standards.
2. Interest rates
The government revises the rate of interest for NSCs every quarter of the
financial year. But once you invest in an NSC, your interest rate is fixed for five years. In the case of an FD,
different tenures have different interest rates which are revised periodically based on the market conditions. So,
make sure you check the prevalent interest rates of both NSC and FD before investing.
3. Tax benefits
Investments in NSCs qualify for tax deductions under Section 80C of the Income
Tax Act, with a maximum limit of ₹1.5 lakh, while the interest earned is subject to taxation. The interest earned on
FDs is taxable based on the investor's income tax slab, and there is no tax benefit otherwise, except in Tax-Saving
FDs.
For instance, Axis Bank offers a Tax-Saver FD scheme, which permits tax savings under Section 80C for
investments up to ₹1.5 lakh.
4. Liquidity
NSCs have a lock-in period of five years, preventing you from withdrawing your
investment before maturity. Conversely, investors have the option to select FDs with different tenures to suit their
liquidity requirements, although early withdrawal might incur a nominal penalty. So, in the ongoing NSC vs FD
debate, FD scores higher in terms of greater flexibility regarding liquidity.
5. Tenure options
NSCs have a fixed tenure of five years only. FDs are more flexible in this
regard. You can choose a tenure ranging from 7 days to 10 years for your Fixed Deposit. Hence, this gives you the freedom
to align your FD investment with your financial goals.
6. Compound interest
For NSCs, interest is compounded annually, which means the interest is
reinvested every year. On the other hand, interest is typically compounded quarterly for FDs. The compounding of
interest gives you a higher return at the end of your investment tenure.
7. Senior citizen benefits
FDs offer an additional 0.5% interest rate to senior citizens aged
over 60. For example, if an individual gets 8% on an FD, then a senior citizen will get 8.5% on the same amount and
period. No such benefits are available for senior citizens in the case of NSCs.
8. Nomination facility
Both NSCs and FDs enable investors to designate beneficiaries. This
ensures a smooth transfer of investment proceeds to the nominated individual in case of the investor's death,
thereby avoiding legal hassle.
What to choose between NSC and FD?
Ideally, you can invest your funds partly in NSC and party in FDs because both have attractive features.
In the case of NSC, you can start with lower investment amounts, e.g. ₹1,000. Additionally, no TDS gets deducted at
maturity.
In the case of FDs, the minimum amount for most banks Rs 5000 to Rs 10000. The interest earned on FDs is also
subject to tax beyond a certain limit.
However, FDs have the following added benefits:
- Premature withdrawal: You can break your FD anytime by simply giving a written request to your
bank or doing it online.
- Sweep-in / sweep-out facility: Most banks offer the feature of an automatic creation of FD
whenever your Savings Account has excess funds. Also, you may
link your FDs with your Savings Account to draw partial funds when needed.
- Flexible interest payout: You can choose monthly, quarterly, semi-annually, or yearly interest
payout as per your requirements.
Also Read: How to
get monthly income from Fixed Deposits?
Conclusion
To decide whether NSC is better — as both are loaded with attractive features and offer financial security along with
great returns. However, FD has an upper hand with added advantages like an online opening facility, quick liquidity,
interest payout options, and flexible tenure. It also presents tax benefits and auto-renewal options. You can check
your interest payable with the NSC vs FD Calculator here.
Before making any investment decisions, it's crucial to evaluate your financial objectives, risk tolerance, and
investment timeframe. Seek guidance from a financial advisor to help customise your investment strategy and
capitalise on available opportunities effectively.
Disclaimer: This article is for information purpose only. The views expressed in this article
are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd.
and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader
for taking any financial decisions based on the contents and information. Please consult your financial advisor
before making any financial decision.
