Bank fixed deposits, and the National Saving Certificates are five-year lock-in period saving instruments that come along with income tax benefits. Post the interest rate division charged during the July-September quarter, the national saving certificate offers a 7.7% interest rate, which is comparatively much higher than what is offered by other banks. The ICICI bank and the State Bank of India provide interest rates of 3% to 7.10% per annum to the common public on deposits that mature from 7 days to 10 years. However, the interest rate offered by HDFC Bank ranges from 3% to 7.25% on these deposits. Before you invest your funds into these savings schemes, it is crucial to acknowledge how they function and what they are.
What is a National Savings Certificate (NSC)?
The National Savings Certificate is a savings scheme offered by the government of India. It is a fixed-income post office saving scheme and a low-risk investment scheme, as the government backs it. The minimum amount to be invested for opening an NSC account is ₹1000, and in multiples of Rs.100. NSC scheme comes with no restricted limit on the amount of money you can invest.
What is a Fixed Deposit?
In fixed deposits, you can invest in post office fixed posit schemes or in banks. The fixed deposit tenure begins from 7 days and lasts up to 10 years. However, the benefits of tax saving under section 80C are applicable only for a five-year lock-in. The interest rates applied vary from bank to bank. Hence, acknowledge the interest rates charged by each bank before you invest.
Difference Between FD and NSC
Basically, an investor goes for investment solutions that offer returns, safety and tax benefits. Moreover, investors seek to achieve their financial goals. As there are numerous savings plans available, investors can choose to achieve their goals.
NSE Vs. FD
The National Savings Certificate offers long investment periods. However, they offer a number of advantages. As compared to savings accounts, higher rates of interest are levied on fixed deposits. Hence, acknowledge the difference between FD And NSC in the table below:
| Factors | NSC | FD |
| Interest Rate | 7.7% | 8.50% |
| Minimum Investment | Rs. 100 | Varies from bank-to-bank |
| Tax Benefits | The interest earned is taxable. | The earned interest is taxed. |
| Interest Payout | Compounded yearly | Compounded on a monthly, quarterly, yearly or half-yearly basis. |
| Taxes | Reinvested interest is tax-free. | When interest generated exceeds Rs. 10,000 in a specific financial year, TDS will be levied for individuals below 60 years. For elderly citizens with interest income above Rs. 50,000 in a financial year, TDS will be levied. |
Where should you Invest- FD or NSC?
The decision you make to invest in FD or NSC depends entirely on your preferences and suitability. However, mentioned below are a few key points to be considered before investing:
Interest Payout
In an FD, you can avail a quarterly or monthly interest or on maturity. However, on maturity, you can get cumulative interest in NSC.
Compounding
In NSC, annually, the interest is compounded. However, in FD, interest is compounded quarterly.
Renew Option
In NSC, renewal can be generated once the five-year tenure comes to an end. However, in FD, no auto renewal facility is available.
Lock-in Interest Rate
While buying NSC, the interest rate offered remains the same throughout the five-year tenure. But in FD, you can choose from multiple tenures, ranging from 7 days to 10 years.
Taxation
In both FD and NSC, you can avail section 80 C advantages for around Rs. 1,50,000 in a single year. But you can only avail this benefit in case of a five-year bank FD.
Fixed deposit benefits
Some of the major advantages offered in fixed deposits are:
- Fixed deposits give higher returns as compared to saving accounts. Moreover, FD offers guaranteed profits throughout the investment period.
- In tax-saving FD investments, a five-year lock-in period is applied. Due to this, a tax exemption is offered by section 80 C of around ₹1.5 lakhs.
- You need not visit a bank to renew your FD, as it can be renewed automatically.
- You can open multiple FDs at different banks. As a result, these plans are an amazing way to secure money for a specific period of time.
- In both private and public banks, tax savings, fixed deposits, and plans are accessible. Hence, you can also open and access your FD account through Internet banking.
NSC Scheme Benefits
When you invest in NSC, you can avail the following advantages:
- It is a low-risk investment as your government backs it.
- You can easily access NSC at any post office. By providing the essential KYC documents, you can invest in any NSE at any post office.
- Section 80 C removes any interest generated from taxation and any restriction on the investment amount.
- There is no specific maximum investment amount in NSC. However, you must invest a minimum amount of INR 100.
- The interest on NSC is generated annually and results in higher returns. It even offers fixed returns throughout the investment period.
- NSC can be availed as collateral for securing bank loans, or it can be taken on behalf of a minor.
Conclusion
When looking for the right investment instrument, all the factors of Fixed Deposit and National Savings Certificate must be considered by the investor. Moreover, an investor must also keep in mind that any interest earned on FD and NSC is received and not paid. Hence, only those investors or individuals must invest in these programs who are not looking for a steady income. NSC can be utilised for longer-period goals such as retirement benefits. However, on the other hand, FD is useful for liquidity as it can be broken whenever in need of money. Hence, always choose to invest after considering the difference between FD And NSC, your risk tolerance, financial goals and time horizon.