Home / Money / Personal Finance /  5 years post office FD vs NSC: Where should you make a tax saving investment?

Investors can choose from a variety of instruments under government-backed post office savings schemes based on their objectives. But those seeking higher returns than those offered by bank fixed deposits might speculate on post office fixed deposits or National Savings Certificates (NSC). The fact that both of these products offer guaranteed interest payments and capital safety makes them ideal for investors seeking liquidity, returns, and tax-efficient investment alternatives. Investors should be informed of the benefits and drawbacks of both post office time deposits and NSC before making a final choice. Let's evaluate both and come to a decision about where to place a bet.

Post office fixed deposit

Similar to a fixed deposit at a bank, a Post Office Time Deposit Account (TD) provides guaranteed returns. A minimum deposit of INR 1000 is needed for post office FDs, and there is no maximum deposit amount. According to the scheme, interest is calculated quarterly but paid annually, and the account types have maturities of one year, two years, three years, and five years. Section 80C of the Income Tax Act of 1961 is applicable to investments made under 5-year TDs, allowing for tax deductions of up to 1.5 lakh every fiscal year. 

Investors who open a post office fixed deposit for one year can get an interest rate of 6.6% per year; for accounts opened for two years, 6.8%; for accounts opened for three years, 6.9%; and for accounts opened for five years, a maximum return of 7% is available. Premature withdrawal options are available with post office fixed deposits, and depositors may also choose to extend their accounts once their accounts mature. Any number of accounts may be created by an investor, and post office fixed deposit accounts may also be pledged when applying for a loan.

National Savings Certificates (NSC)

Just like post office fixed deposits, National Savings Certificates (NSC) also come with a tenure of 5 years and a similar interest rate of 7.0 % compounded annually but payable at maturity. A minimum deposit of Rs. 1000 is required to open a 5-year NSC account, and deposits can be made in multiples of Rs. 100 with no upper limit. 

As a result, Rs. 1000 will climb to Rs. 1403 after five years. Under the plan, any number of accounts may be created, and deposits, like post office fixed deposits, are eligible for tax deductions of up to 1.5 lakh yearly under section 80C of the Income Tax Act. The account will mature after five years from the deposit date, however, the account may be prematurely closed before that period on the death of the account holder. 

NSC could be guaranteed to request a loan and it also may be transferred from one person to another when an account holder passes away, either to joint holders or to nominee/legal heirs.

Where to invest?

CA Manish P Hingar, Founder at Fintoo said “NSCs are a type of fixed deposit, where the investment is made for a fixed term of 5 years and the interest is compounded annually but paid at the end of the tenure of 5 years. The current rate of interest for both NSC and 5-year Post Office Fixed Deposits is 7% p.a. From a tax benefit point of view, both are eligible under 80C deduction of up to 1.5 lakhs as per the Income Tax Act. However, it is to be noted that interest on both the mentioned is taxed as per the individual’s tax slab rate. Please note that NSC can also be used as collateral for securing loans from banks.“

“Although both options are suitable for conservative investors seeking fixed returns along with capital protection and tax saving, NSC has an added advantage where interest accrued is reinvested in NSC and thus the reinvested interest amount is also eligible for deduction under Section 80C for coming years. It makes NSC a better option than Post Office FD," he claimed.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


Vipul Das

Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout