NSC vs FD : Detailed Comparison - Which is better?

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Whenever you think about short-time savings schemes in India, Fixed Deposit (FD) and National Savings Certificate (NSC) comes top of the queue. Both FD and NSC are popular savings schemes in terms of capital security, interest-rate, and tax benefits. If you are confused and thinking about which option will be better to invest in, you have landed at the right destination. In this article, I’m going to discuss FD and NSC with their pros and cons. After reading through this article, you will have an idea about which one will be perfect for you.

Fixed Deposit (FD)

Fixed Deposits are saving instruments offered by Banks. The tenure of a Bank FD is not fixed and can be some days or months or even some years. The rate of interest for a Fixed Deposit is constant for a tenure. An example, if you invest 10 lakh in a 5-Year FD scheme at the rate of 7%, you will receive the same interest consistently for five years. Opening a Fixed Deposit online is allowed by most of the banks with their internet banking portal.

Online FD Calculator

Features of Fixed Deposit (FD)

• A Fixed Deposit offers a better interest rate than a regular savings account.
• There is no investment limit in regular Fixed Deposit.
• One can have multiple FD accounts with the same or other financial institutions.
• Fixed deposits can be renewed or reinstated after maturity.
• Mostly, FD is allowed to close before maturity.
• In general, the interest you earn from Fixed Deposit is taxable. However, banks also offer Tax-Saving FDs. But maximum investment on Tax-Saving FD is limited to Rs. 1.5 lakh in a financial year.

TDS on Fixed Deposits

Income from FD is taxable and the rate of tax will be according to your income tax slab. In a financial year, a TDS rate of 10% will be applicable on income over Rs. 40,000 and Rs. 50,000 for normal depositors and senior citizens respectively. 

Types of Fixed Deposits

Normal Fixed Deposit

• Tenure of 7 days and up to 10 years* 
• Offers a fixed interest rate and that is payable on maturity. 
• Income from FD is taxable and the rate of tax will be according to your income tax slab. 
• TDS is applicable.
• Most banks allow premature closure of normal FDs.

5-Year Tax-Saving Fixed Deposit

• Comes with 5 years of tenure
• Most banks do not allow premature closure of Tax-Saving FD.
• The maximum investment limit under a Tax-Saving FD is Rs. 1.5 lakh in a financial year.
• Tax-Saving FD offers income tax deduction up to Rs. 1.5 lakh under section 80C.
• Interest from Tax-Saving FD is taxable.

Non-Cumulative Fixed Deposit

• Offers multiple maturity options. 
• Interest is payable on a monthly, quarterly, half-yearly, or annual basis.
• No tax benefits

Senior Citizen Fixed Deposit

• The only personage of 60 and above can open Senior Citizen FD
• Senior citizen FD can be a normal FD or Tax Saving FD or even a Non-Cumulative FD
• Offers .5% more interest rate than other FDs

How to save TDS on FDs?

If income from FDs exceeds over Rs. 40,000 in a financial year, the bank will charge TDS at the rate of 10% on the earned-interest. If you do not fall under the income-tax slab, you can submit a 15G or 15H form to the bank once a financial year. The 15H-form applies to senior citizens and 15G to anyone other than senior citizens.

Also read: Public Provident Fund (PPF) - Eligibility & Benefits

Post Office NSC (National Saving Certificate)

NSC, the five-year saving certificate that offers a guaranteed return with a fixed rate of interest by the Government of India. For those who are looking for capital protection along with tax benefits, National Saving Certificate (NSC) can be a good option. You can get an income tax rebate of up to Rs. 1.5 lakh under section 80C. There is no upper limit of investment under the NSC scheme. However, the tax benefit is only applicable to up to Rs. 1.5 lakh. As of now, the National Saving Certificate online purchase is not available.

Post Office NSC Calculator

Features of National Saving Certificate (NSC)

• Post Office NSC is a 5 Year saving scheme with a fixed rate of interest.
• Premature withdrawal of NSC is not allowed.
• One can have multiple National Saving Certificates.
• NSC offers a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act in a financial year.
• Interest from NSC for the initial four years is not taxable. However, the interest earned in the 5th year is taxable according to your income-tax slab.

Also, Read Senior Citizen Savings Scheme (SCSS) - a better option than an FD!

Normal Saving Fixed Deposit (FD) vs National Saving Certificate (NSC)

5 Year Tax Saving Fixed Deposit (FD) vs National Saving Certificate (NSC)

FD or NSC Which is Better

Fixed Deposit and National Saving Certificate are both debt instruments that have the potential to beat inflation. For convenience, FD is a better option than NSC. All banks offer an FD opening facility in both offline and online mode. Whereas, you have only one place to buy NSC is the Post office. Also, NSC is not available to purchase online. The availability of FD is better than NSC. 

NSC offers a slightly higher interest rate than bank FD. However, the interest in NSC compounds annually and FD compounds quarterly. You should note that quarterly compounding accumulates more interest than annual compounding. So, more or less, both options generate nearly the same return. NSC is a Government-sponsored saving scheme. As a result, you can expect more capital security than Bank FD.

Also read: Sovereign Gold Bonds (SGB) - Regular Income from Gold