Fixed Deposit (FD) and National Savings Certificate (NSC) are two popular investment options in India, each offering distinct features tailored to different financial goals. Understanding their differences can help investors make informed decisions based on their needs.
Key Takeaways
- FD tenure is flexible from 7 days up to 10 years, whereas NSC has a fixed 5-year lock-in period.
- NSC is a government-guaranteed scheme with full tax benefits under Section 80C; FD tax benefits apply only to tax-saving fixed deposits.
- FD interest is taxable with potential TDS deduction; NSC interest is taxable but without TDS deduction during tenure.
- FDs offer more liquidity with a premature withdrawal option; NSCs are locked-in investments with no liquidity before maturity.
What is a Fixed Deposit (FD)?
A Fixed Deposit is a financial instrument provided by banks and Non-Banking Financial Companies (NBFCs) where an investor deposits a lump sum amount for a fixed tenure at a predetermined interest rate. The principal and interest are paid out at maturity. FDs are known for their safety and guaranteed returns.
What is a National Savings Certificate (NSC)?
The National Savings Certificate is a government-backed savings bond available at post offices across India. It offers a fixed interest rate and a lock-in period, making it a low-risk investment option. NSCs are primarily used for tax-saving purposes under Section 80C of the Income Tax Act.
Difference Between FD and NSC
Fixed Deposit (FD) and National Savings Certificate (NSC) are both secure investment options but differ significantly in terms of issuer, liquidity, interest rates, and tax treatment.
While FDs are offered by banks and financial institutions with flexible tenures and allow premature withdrawals (often with a penalty), NSCs are government-backed fixed-income instruments with a mandatory 5-year lock-in period and no option for early withdrawal. NSCs typically offer slightly higher interest rates compared to FDs and have the added benefit of compounding interest annually, making them attractive for long-term investors.
| Particulars | Fixed Deposit (FD) | National Savings Certificate (NSC) |
| Issuer | Banks, NBFCs, Digital Finance Companies | Government of India via Post Office |
| Tenure | Flexible: 7 days to 10 years | Fixed: 5 years |
| Minimum Investment | Depends on bank (usually Rs. 1,000 to 5,000) | Rs. 100 or multiples of Rs. 100 |
| Liquidity | Can be withdrawn prematurely with penalty | Locked-in, no premature withdrawal except in extreme cases |
| Interest Rate | Varies by institution; generally 7-8% p.a. | Fixed at approx. 7.7% p.a. (quarterly revised) |
| Interest Compounding | Monthly/quarterly/half-yearly/yearly | Annually, paid at maturity |
| Tax Benefit | Tax-saving FDs qualify under Section 80C | Investment qualifies under Section 80C |
| Tax Deduction at Source | TDS applicable if interest exceeds Rs. 10,000 (Rs. 50,000 for senior citizens) | No TDS, but interest income taxable |