If the earned interest is higher than ₹ 40,000, the financial institution will apply 10% TDS on the earning. However, this upper cap is ₹ 50,000 for senior citizens.
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.
What Is a National Savings Certificate?
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.
What Is a Fixed Deposit?
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.
What Are the Key Differences Between FD and NSC?
Following are some of the major differences between FD and NSC:
You can open an FD for a maturity period that you deem convenient. The financial institutions give you a range of options.
The maturity period of the NSC remains fixed, as decided by the government. Your deposit will stay locked for 5 years.
The interest rate for FDs varies from one financial institution to another. Types of FDs are also one of the influencing factors for the interest rate.
There is no type of NSC and similarly, the interest rate is also singular for all beneficiaries.
Most financial institutions add compound interest on the deposited amount quarterly. So, the compounding frequency is 4 in a year. Nevertheless, it can vary across financial institutions.
You earn interest on your NSC deposits on an annual basis. Hence, the compounding interest is once a year.
Tax Deducted at Source or TDS
You will have to bear a TDS of 10% on your FD earnings.
TDS is not applicable to your earnings from NSC deposits.
You can withdraw your funds from FD before the end of the tenure by paying a certain penalty between 0.5% and 1.0%.
You cannot withdraw your deposits from your NSC account at will.
The financial institution is liable to return you your amount and the earned interest. In case of insolvency, you may or may not get the aggregated amount.
The NSC issued from the branch of India Post is the responsibility of the Government of India. All your earnings and deposits are backed by it.
What Are the Benefits of NSC?
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.
The deposits made in the NSC come with the feature of annual compound interest.
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.
What Are the Benefits of FD?
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.
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.
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 AccountsThere is no limit to how many FD accounts you can open. You can even open FDs with different financial institutions if you want.
FD vs NSC - Which One Is Better?
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.
FAQs about Fixed Deposit Vs NSC
There are some predetermined provisions under which premature withdrawal is possible. These provisions include the demise of account holders, pledged forfeiture by a gazetted officer, and court orders.
In case the account holder passes away before the maturity of the FD, their nominee will be able to withdraw the fund. To get the amount, the nominee will have to submit the concerned withdrawal form and attach the death certificate of the account holder and their own identity proof. In case an individual opens a joint FD account, the survivor account holder will be able to withdraw the fund. For this also, the secondary account holder will have to provide the primary account holder’s death certificate.
You will have to reach your nearby post office branch and submit the duly filled application form for NSC along with the necessary documents. You can get the form from the post office branch itself.
The following documents are necessary while requesting for opening an NSC account:
- Duly filled KYC form
- Your PAN card and Aadhaar card (if the Aadhaar card is unavailable, you can also provide any other government-issued ID card like voter card, passport, driving licence, etc.)
- A document serving as proof of your birth date
There are multiple types of FDs apart from the regular one, catering to your diverse requirements. Some of these are tax-saving FDs, special FDs, Flexi FDs, senior citizen FDs, regular income FDs, etc. All these have unique features and advantages. For example, if you avail a senior citizen FD, you can enjoy an additional rate of interest on your deposits.
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- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
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