5-Year NSC Or Tax Savings FDs: Which Is The Best Investment Option?

There are numerous ways in today's financial world for a working-class individual to invest in available options that guarantee confirmed returns. Fixed deposits and National Savings Certificate are some of these financial instruments that allow investors to gain good returns and acts as better hedge against rising inflation.

Fixed Deposits are one of the safest and risk-free methods one can invest in and expect fixed timely returns from their deposits. The services of fixed deposits are offered by all banking and NBFC institutions with varied interest rates. The funds are deposited in the account and offer better or some of the highest interest return rates than any other services like savings, current or recurring deposits. Investors can either choose to have the interest earnings deposited in another savings account or can opt for collecting the interest amount within the same fixed deposit to earn higher returns from accumulated amounts.

NSC or National Savings Certificate are an investment or deposit fixed-income facility offered under the Post Office Savings Scheme, offered by the Government of India. Where fixed deposits offer higher interest rates than other deposit schemes, NSC offers slightly higher interest rates than fixed deposits as well.

However, features like withdrawal before maturity and interest earnings pay-out are not available with NSC. The interest is collected every year and paid once the lock-in period of the certificate ends. Unlike fixed deposits, the scheme cannot be extended beyond the maturity of a period of 5 years.

The best option out of the two is difficult to zero in as both the investment instruments offer the best safety features backed by either RBI or the Government of India. However, individuals who would prefer saving an extra spending on tax payments, would select some of the best tax-saving fixed deposit schemes and reinvest the interest earnings every year to ensure a higher amount is accumulated during withdrawals. Below there is a detailed description of both the investment options with their features and significant differences that aligned.

Features	Tax Savings Fixed Deposit	National Savings Certificate
Interest Rates	Rates offered are in between 7.45% to 8.5% per annum	Rates offered at fixed 7.7% per annum
Lock-In Period	Funds can be invested from a period of 10 days to 10 years. Interest rises according to the lock-in tenure.	Funds must be invested for a lock-in period of 5 years
Collateral Attachment	Can be utilised for collateral in applying for loans or debts.	Can be used as collateral for loans, but limited to some banks and selected NBFCs
Pre-mature Withdrawal	Withdrawal before lock-in period is usually not allowed, but can be possible under some circumstances	Withdrawal is allowed any time, however, the total interest paid would be 1% less than the interest rate applicable at the time of the deposit initiation
Taxable Income	When interest earnings are withdrawn, tax is applicable for the financial year if total earnings are above Rs. 1.5 lakhs and no tax is applicable when interest earnings are re-invested back in the deposit. Some Senior Citizen FD scheme are government promoted, which offer tax-savings benefits apart from usual tax deductions.	Tax Deductions are qualified under Section 80C of The Income Tax Act. Tax Deducted at Source (TDS) is applicable when interest amount exceeds Rs. 10,000 in the financial year for adults below 60 years of age and for Senior citizens above 60 years, a TDS is deducted if interest earnings are above Rs. 50,000/- in a particular year.
Re-investment Option	Funds accumulated with interest earnings each year can be re-invested into the deposit and maturity can be extended for multiple years, depending on the institution and FD scheme applied for	There is no re-investment option in NSC, but investors can opt for new NSC after the maturity period completes
Fund Security	Though the fund security for fixed deposit lies with the banking institution, as per the RBI's Deposit Insurance & Credit Guarantee Corporation (DICGC), around Rs. 5 lakhs are insured for each depositor.	This a a Government of India-backed scheme which ensure there is no risk of losing the primary investment and confirm payments are made with interest earnings by the maturity period.