NSC vs. FD: Which One Should You Choose?


Investors in India have a variety of options to invest in, which includes fixed deposits, mutual funds, National Savings Certificate (NSC), etc. However, investors like to choose an investment option that offers a blend of safety, returns, and tax efficiency.

Two such investment options for which you can go are fixed deposits (FDs) and the National Savings Certificate (NSC). Both NSC and FDs are viable short- to medium-term investment instruments with a lock-in period of five years.

However, if you have to choose between the two, you need to know a few things. This includes understanding the market and the interest rates. 

Read on to learn about these investment tools and the comparison between fixed deposit interest rates and NSC returns.  

What are Fixed Deposits?

A fixed deposit (FD) is one of the more popular investment instruments in India. An FD allows you to park your funds for a predetermined tenor ranging between 7 days to 5 years. Some issues allow you to invest for up to 10 years as well. 

However, note that tax-saving FDs come with a lock-in period of 5 years. The FD has several interest payout options, and you get the principal amount invested only at the end of the tenor. 

Here, the fixed deposit interest rate you get varies depending on the issuer, investor profile, tenor, FD type, and invested amount. Additionally, you can enjoy higher returns on FDs if you are a senior citizen. This is because the senior citizen FD rates are generally 25-50 basis points higher than rates on regular FDs. 

What is NSC?

The National Savings Certificate (NSC) is a government-backed fixed-income investment instrument. You can opt for this investment facility from any of the India Post Office branches. The NSC comes with a maturity period of 5 years.

For the April-June quarter of 2023, the government has notified the NSC interest rate to be 7.7% p.a. This investment option is the best-suited for conservative investors who are looking for tax saving benefits at lower risk.

Difference Between Fixed Deposits and NSC

The following table depicts some notable differences between fixed deposits and National Savings Certificates (NSC):

FeaturesFixed Deposit (FD)National Savings Certificates (NSC)
Investment InstitutionFDs are investment options that can be booked with banks and NBFCsInvestors can invest in the NSC at their nearest India Post Office branch
Tenor/MaturityIt ranges between 7 days to 10 yearsIt has a maturity period of 5 years
Interest RateThe fixed deposit interest rates range between 3%-9%. The Senior Citizen FD rates are generally 0.5% higher than regular FDsFor April-June 2023, the government of India has fixed the NSC interest rate at 7.7% p.a.
Tax BenefitsThe interest earned on your FD is entirely taxable. However, Section 80C of the Income Tax Act allows investors to enjoy tax benefits of up to ₹1.5 Lakhs in a financial year. 
To avail of these benefits, the maximum tenor of the FD has to be 5 years
Under Section 80C of the Income Tax Act, investors can avail of deductions of up to ₹1.5 Lakhs in a year
Tax Deducted at Source (TDS)Tax Deducted at Source (TDS) at the rate of 10% is applicableNo TDS is applicable
RisksFDs are low-risk investment avenues. The only risk associated with FDs is the likelihood of the issuer going bankrupt. 
However, DICGC insures a maximum amount of ₹5 Lakhs on the principal amount and interest amount on bank FDs. 
As NSCs are backed by the government, there is no risk associated with it
LoanInvestors can avail of loans against their FD investmentInvestors cannot use NSC investments as collateral to get loans

Disclaimer: Interest rates mentioned are as of May 2023, and are subject to change. 

NSC vs FD: Which One is Better?

If you are looking to invest in an investment instrument for 5 years, you can go with either fixed deposits or NSC. Both of these are best suited for conservative investors looking for safer investment avenues.

The fixed deposit interest rates have increased significantly in the previous year, making it a more attractive investment option. Moreover, senior citizens can enjoy added benefits through FDs as senior citizen FD rates are generally higher.  

For younger investors, the National Savings Certificate can be a great investment tool. The government has increased its interest rates to 7.7% p.a. for the April-June 2023 quarter. Apart from looking at the interest rate, you must also assess the tax benefits offered by these. 

Under Section 80C, both NSC and tax-saving FD offer tax benefits of up to ₹1.5 Lakhs in a year. However, there is no TDS applicable on NSC returns as opposed to a 10% TDS rate on FD returns.

In conclusion, both FDs and NSC are great investment options for those who are looking for low-risk investments. However, investment in FDs is quite simple and easy as compared to NSC. Moreover, FDs also offer higher control over the money you wish to invest in.  

Depending on the issuer, you also enjoy other perks, which include renewal bonuses, online tracking tools, reinvesting services, and more. While both instruments have their place in a portfolio, the FD has the potential to deliver higher returns in the long run. 

It is also considered an asset, and can be pledged as collateral for loans. This makes it incredibly useful in emergencies, as you do not have to withdraw your investment to get funds.