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Difference Between FD vs. NSC

Generally, investors choose investment solutions that provide safety and returns and are tax-efficient. In addition, they want to achieve their financial objectives. Investors can choose from a variety of savings plans to fulfill these goals.

FD vs. NSC

National Savings Certificate (NSC) have a longer investment duration, but they come with a variety of perks, including tax advantages. In comparison to savings accounts, fixed deposits pay a substantially higher rate of interest. Before we set these tiny savings programs against one other to see which one is best for whatever case, it's critical to grasp what they signify and how they work.

The Comparison of FD and NSC

The table below will display the differences between the two investment instruments

Particulars Fixed Deposit NSC
1) NSC Vs. FD interest rate: 8.50% 8.5% to 8.8%
2) Minimum Investment of the Schemes: Depends on Banks Rs.100
3) Tax Benefits on the Schemes: The interest earned will be taxed. The interest earned is taxable.
4) Interest Payout on the Schemes: It is compounded either monthly, quarterly, half-yearly, or yearly. It is compounded yearly.
5) Taxes: For those under the age of 60, TDS will be imposed if interest generated exceeds Rs.10,000 in a particular financial year. TDS will be applicable to elderly citizens whose interest income exceeds Rs.50,000 in a particular financial year. Interest that is reinvested is tax-free.

Benefits of a Fixed Deposit

Mentioned here are some of the biggest advantages of investing in Fixed Deposits:

  • Savings accounts give lower returns than fixed deposits. They also provide guaranteed profits over the course of the investment period.
  • A five-year lock-in period applies to tax-saving FD investments. As a result, Section 80C provides a tax exemption of up to Rs. 1.5 lakhs.
  • FDs can be automatically renewed. It is not necessary to go to the bank to renew it.
  • You can open as many FDs as you like at different banks. As a result, these plans are a terrific method to save money for a set period of time.
  • Tax-saving FD plans are widely accessible in both public and private banks. As a result, internet banking can also be used to open an FD account.

Benefits of an NSC Scheme

The benefits of investing in NSC are as follows:

  • This instrument is a low-risk investment option because it is backed by the government.
  • It's easily accessible at any post office. On provision of the requisite KYC documents, one can invest in NSC at any post office.
  • Section 80C exempts the investment amount and interest generated from taxation.
  • The minimum investment amount is INR 100, and there is no maximum investment amount.
  • NSC interest is compounded annually, resulting in bigger returns. It also provides fixed returns over the investment period.
  • It is possible to take the NSC on behalf of a minor. It can also be used as a form of collateral to secure bank loans.
Access to fixed deposits
of various banks
Invest without opening
a new bank account
Avail high interest rates
of up to 6.5%
OPEN FD ONLINE

Suitability of FDs and NSCs

Both the NSC and the FD instruments have benefits and drawbacks. NSC offers a number of advantages over fixed deposits, including lesser risks and greater interest rates. The reason for this is that TDS is taken from FD interest. Even though FDs offer a little higher interest rate, post-tax returns may be lower due to the TDS deduction. 

As a result, while comparing these two tax-saving instruments, it's important to evaluate the interest yielded on maturity on FDs and NSCs, not just the interest rate.

If the investor is over the age of 65 and earns less than the taxable limit, they can get a higher interest rate (banks provide preferential interest rates for senior citizens). They can also submit Form 15H or 15G to avoid paying TDS. As a result, if these forms are submitted to avoid TDS, these two saving instruments will mature at the same time. In addition, additional aspects such as interest rate, compounding frequency, and so on must be considered.

When choosing the right investment vehicle, an investor must consider all of the aspects. Furthermore, keep in mind that interest gained on NSCs and FDs is accrued rather than paid out. As a result, these programs should only be considered by those who do not require a steady income.

In a larger sense, because NSC is illiquid, it can be used for long-term goals such as retirement benefits in the old age. FDs, on the other hand, might be useful in terms of liquidity because they can be broken whenever money is needed. As a result, one should select an investment vehicle based on financial goals, time horizons, and risk tolerance.

Comparison of FD rates

Name
Tenure
Highest Interest Rates
1
2
3
4
5

FAQs

Q1. Can I get a loan using NSCs?

Yes, you can take out a loan using your NSC as a security deposit.

Q2. Is it permissible to close an NSC before it has reached maturity?

No, NSCs have a pre-determined lock-in time, and they are not allowed to be closed early.

Q3. Would I be able to invest in a certain number of NSCs?

There are no restrictions on how many NSCs a person can purchase. There is, however, a limit to the tax benefits available to NSCs.

Q4. Is it possible to get a loan against my FDs?

You could also take a loan against your FD, yes. In the case of tax-saver FDs, however, this is not possible.

Q5. Which is preferable: NSC, PPF, or FD?

When it comes to interest, PPF interest is tax-free. However, NSC interest is taxable and will be deducted from your taxable income. The interest on an NSC, on the other hand, is deductible under Section 80C of the Internal Revenue Code. It is preferable to pay tax on the accrued interest rather than the maturity date.

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