What is the Difference Between FD and NSC?

To grow your money in relatively safe and secure investment instruments, you will get various options, including fixed deposits (FDs) and National Savings Certificates (NSCs). Both these offer a higher interest than the regular savings account.

Moreover, their interest rates also remain fixed. They are not volatile like stock market returns, letting you correctly assume what your fund value will be at the end of the maturity period.

All these may confuse you about which one you should choose. Here is a comprehensive comparison of FD vs. NSC. However, first of all, you need to start by knowing what these are.

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National Savings Certificate or NSC is a small savings scheme backed by the Government of India. You can invest in NSC from your nearby post office branch. Although there is no upper cap to what you invest in your NSC account, you will have to deposit a minimum amount of ₹ 1,000.

Your deposit grows at a fixed interest rate as determined by the Finance Ministry of India. You have the option to create a single or joint NSC account at your convenience. In fact, purchasing an NSC under the name of a minor (age lower than 10 years) is also possible.

Deposits in a National Savings Certificate come with a lock-in period of 5 years. If you intend to keep your money in this instrument even after maturity, you will have to purchase a certificate again.

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A fixed deposit is an instrument of investment in which you can keep your money saved for a particular predetermined period. To get this facility, you will have to contact a financial institution like a bank or a Non-Banking Financial Company (NBFC).

You get the option to choose a maturity period between 7 days to 10 years, depending on the flexibility of the financial institution and your preferred time horizon. The interest rate remains unchanged throughout the maturity period. After the maturity period, you will get your fund back along with the interest accrued on it.

Tax Benefit

Section 80C of the Income Tax Act (IT) of India 1961 enables you to get tax benefits on your deposits in the NSC account. You can reduce your total taxable income for up to ₹ 1.5 Lakh under this section.

Compound Interest

The deposits made in the NSC come with the feature of annual compound interest.

Easy Availability

You can easily open your account for the National Savings Certificates from the nearby branch of the India Post. For this, you just have to reach the branch and submit your duly-filled application form along with the necessary documents.

No Limit of Accounts

You can open as many accounts of NSC as you intend. There is no limitation on this aspect.

Transfer of Account

In case of the death of account holders, the NSC deposits get transferred in the name of the nominee, legal heirs, or the secondary joint account holder.

Higher Interest than Normal Savings

You get a higher interest rate on your fixed deposits than the normal savings in financial institutions. As a result, it will help you earn more on your deposits.

Flexible Maturity Period

Financial institutions let individuals select a maturity period of their choice. It can be as low as 10 days and can go up to 10 years. You need to determine the period at your convenience, according to your financial plan.

Loan Facility

You can also keep your FD as collateral and get a loan against it in case you need financial assistance. In such a case, the loan amount will depend on your aggregated value of the FD. You can borrow up to 75% to 85% of your FD value. By taking the credit facility, you will not have to break your deposits unnecessarily.

Easy Renewal

You can renew your FDs after the end of their maturity period conveniently. For this, you will only have to contact your financial institution requesting the same. You also have to submit a prescribed application form for FD renewal.

Limitless Number of Accounts

Now that you know the differences between FD and NSC, you can apprehend that both have their own merits and demerits. You need to choose between any of these according to your financial plan and requirements.

For example, if you want stable interest, enhanced security on your deposit, and tax benefits at the same time, you may proceed with investing your money in the NSC. In fact, you will not even have to encounter a TDS deduction on your earnings.

Nevertheless, NSC has also some major catches in terms of its predetermined maturity period and interest rate. The FD does not come with these drawbacks. You can choose from a range of maturity periods.

Further, you may also find financial institutions that provide higher interest rates than NCS. You can even avoid TDS on your FD by submitting a duly filled 15G/H form. After submission of this form to your financial institutions, they will not deduct TDS.