National Savings Certificate (NSC), a flagship small savings scheme offered by the Indian government through post offices, is already very popular among the masses.
As several banks including HDFC Bank and ICICI Bank had hiked their interest rates in February, let us re-examine how bank FDs compare with the National Savings Certificate scheme.
Current Interest Rate: As of the fourth quarter of the fiscal year 2023-24 (January-March), the interest rate on NSC has been set at a commendable 7.7 per cent per annum, unchanged with the preceding quarter (October-December 2023).
Though the scheme's interest rate is considered for revision every quarter by the government, it is not necessarily revised. At the current interest rate of 7.7 per cent per year, NSC will take about 10 years and 4 months to double your investment.
Note that though the interest rate can be increased next year, the investor will only get the interest rate at which he joined.
One of the key advantages of investing in NSC is the additional benefit of income tax exemption. Investors can avail themselves of up to Rs 1.5 lakh worth of tax deductions under Section 80C of the Income Tax Act, provided they opt for the old tax regime and invest in this scheme.
Investing in NSC can be done with a minimum investment of Rs 1000, with increments in multiples of Rs 100. There exists no upper limit on investment, but the tax deduction is only applicable up to Rs. 1.5 lakh worth of investment.
Investment can be done only if you hold a post office account, and can be done either offline at the nearest post office or online via the DOP post office website.
In offline mode, individuals can visit any post office branch nationwide to purchase NSCs, where they have to complete an application form, provide KYC documents, make the payment and receive the physical NSC certificate. Alternatively, the online mode allows you to use DOP internet banking. In your account, navigate to 'General Services,' select 'Service Requests,' and open an NSC account by specifying the investment amount.
NSC comes with a lock-in period of 5 years, and premature closure in one year results in the forfeiture of interest. Investors can nominate an individual to receive the maturity amount in case of their demise.
While NSC currently offers a lucrative interest rate of 7.7 per cent per annum, tax-saving bank FDs in large banks hover around 7 per cent to 7.2 per cent for similar 5-year lock-in. Even though some FDs offer a little higher interest rate, post-tax returns may diminish due to TDS deductions.
On other bank FDs, large banks typically offer interest rates ranging from 7.25 per cent to 7.50 per cent on their highest returning tenures, which varies on a bank-to-bank basis.
However, some small finance banks give higher interest rates such as Unity Small Finance Bank, which offers 9 per cent for a tenure of 1001 days, and Suryoday Small Finance Bank, which offers 8.65 per cent for a tenure of 2 years and 2 days for general deposits. Senior citizens may get slightly higher rates.
Nevertheless, it is important to know that the credit risk associated with FDs from small finance banks is higher, as they often have a smaller deposit base and thus higher default risks.
