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What’s the Difference Between NSC and FD?
Posted on Friday, May 24th, 2024 | By IndusInd Bank
When it comes to investments, investors have many investment options suitable for diverse risk-return needs. National savings certificates (NSC) and fixed deposits (FD) are the two of the most popular investment options among other preferred traditional investment choices of individuals. These investment avenues are time-tested and preferred by investors seeking capital preservation and steady returns.
The two differ in several aspects that can significantly impact the investment outcome. Investors need to understand the comparison – NSC Vs FD – to make informed decisions about their savings and investments. This article aims to provide a detailed understanding of these differences.
National Savings Certificate (NSC)
A National Savings Certificate is available for investment through India Post. Here are some key features of an NSC:
- NSCs have a 5-year investment duration and can be held in single holding (including minor) and joint holding.
- The minimum deposit in NSC can start at INR 1,000 with no upper limit.
- NSC can be pledged or transferred.
- Premature closure is allowed only in the event of the certificate holder’s demise or by a court order.
- NSC pays a fixed rate of interest compounded annually.
Fixed Deposit (FD)
Fixed deposit is a savings product offered by banks and financial institutions where you invest a fixed sum of money for a specific tenure at a predefined interest rate. Here are some key features of fixed deposit:
- Fixed deposits offer varying tenures ranging from 7 days to 10 years.
- Interest rates on fixed deposits vary depending on the tenure chosen and from bank to bank.
- Premature withdrawal is allowed in a fixed deposit. However, banks may charge penalties or charges for it.
- Fixed deposits come in many types. It gives you the flexibility to choose a reinvestment option/interest payout.
- You can take a loan against a fixed deposit.
Also Read: Fixed deposit myths debunked: What you need to know
Fixed Deposit Vs National Savings Certificate
| Parameters | Fixed Deposit | National Savings Certificate |
| Issuer | Provided by the banks and financial institutions | Government-backed savings scheme issued by India Post |
| Investment safety | FDs are safe investment options considering the nominal risk. Also, the depositor is insured up to INR 5 lakhs by the Deposit Insurance and Credit Guarantee Corporation (DICGC) | Ensures capital protection as it is backed by the Government of India |
| Interest rate | Interest rates vary from one financial institution to another and depend on the tenure chosen | The current rate is 7.7% p.a. |
| Investment tenure | 7 days to 10 years | 5 years |
| Liquidity | Fixed deposit offers liquidity with the option to choose the tenure, interest payout, and premature withdrawal (at nominal charges) option. However, a tax-saving fixed deposit has a 5-year lock-in period, during which one cannot withdraw funds. | NSC has a lock-in period of 5 years. Hence, it is relatively illiquid. |
| Flexibility | Offers various interest payout/reinvestment options, investment tenured, and partial/pre-mature withdrawal options. | Relatively less flexible as it comes with a 5-year maturity period. Interest is compounded annually and paid on maturity. |
| Tax implications | Income tax deduction benefit under Section 80C of the Income Tax Act, 1961 is not allowed, except for tax-saving FDs. Interest earned on FD is also taxable. | NSC investments qualify for tax deduction under Section 80C of the Income Tax Act 1961 for up to ₹1,50,000. However, interest earned is subjected to tax on maturity/withdrawal. |
Also Read: The Impact of Inflation on Fixed Deposits
On Concluding Note
National Savings Certificates (NSCs) and Fixed Deposits (FDs) come with the common feature of providing fixed income returns, capital preservation, and more. Understanding the nuances of both investment options is crucial for investors to align their investment choices with their liquidity needs, risk tolerance, and financial objectives. By comprehending the differences between NSC and FD, individuals can make rational investment decisions to optimise their investment portfolio.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and 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.
