If you want to save tax and make safe investments, then Fixed Deposit (FD) and National Savings Certificate (NSC) are considered two popular options. Investing in both the schemes gives assured returns and tax exemption can also be availed under Section 80C of Income Tax. However, there are some significant differences between the two in terms of interest rate, lock-in period, liquidity and returns. In such a situation, before investing, it is important to understand which option between FD and NSC can be more beneficial for you. If you want to make a better choice for your portfolio, it is important to understand the key differences between NSC and FD.
Security
Both NSC and FD are considered very safe. NSC is issued by the Government of India, hence it has a government guarantee and is highly secure. On the other hand, FD in reputed banks is also quite safe, as the banks operate under the strict rules and regulatory framework of RBI.
interest rate
The interest rate of NSC is decided by the government and remains fixed during the investment period. Currently (for the quarter January-March 2026), the interest rate applicable on NSC is 7.7% per annum, compounded annually and payable on maturity. The interest rate in FD may change as per the bank and market conditions, but once the FD is opened, the fixed rate remains fixed for the entire tenure. In many banks, you can get rates up to 6-7.5% on 5 year FD, while in some cases you can get more than NSC. Senior citizens get the benefit of additional rates in both.
tax benefit
Tax exemption up to Rs 1.5 lakh is available on investment in NSC under Section 80C of the Income Tax Act. Interest is taxable, but no TDS is deducted. FD interest is taxable as per the income tax slab of the investor. Tax-saving FD (5 years) also gets exemption up to Rs 1.5 lakh under 80C.
liquidity
NSC has a fixed lock-in period of 5 years. Withdrawal before maturity is generally not possible (except in special cases such as death). However, NSC can be used as collateral for a loan in some cases. FD has more flexibility. Premature withdrawal is possible if needed, but penalties may apply.
investment period
NSC is mainly available for a fixed tenure of 5 years (some older ones also had 10 year options, but currently 5 years is predominant). The tenure in FD is very flexible – many options are available from 7 days to 10 years, so you can choose as per your goals.
compound interest
In NSC, interest is compounded annually, but it is not reinvested – all interest is received on maturity. By choosing the cumulative option in FD, the interest is compounded (usually on a quarterly basis), which can give more benefit of compounding. In non-cumulative, interest is paid regularly.
Benefits for senior citizens
In both, senior citizens get higher interest rates than normal. NSC also has an additional rate applicable, whereas bank FDs often get an additional 0.25-0.75%.
nomination facility
Nomination facility is available in both NSC and FD. With this, on the death of the investor, the amount easily goes to the nominee, without much legal process.
how to choose
According to ICICI Bank, if government guarantee, fixed 7.7% returns, and 80C tax savings are your priority, then NSC would be better for you. If you want more flexibility, potentially higher rates (in some banks), and the benefit of compounding, then FD would be better for you. Always decide based on your financial needs, tax situation and liquidity requirement. Be sure to check the latest interest rates before investing, as they may change.
Latest Business News