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Post Office NSC Vs Tax Saver Bank FD: Which One Is Better For You To Invest?


Lots of investors get confused between these two tax-saving options - National Savings Certificate (NSC) and Tax Saver Bank FD - regarding where to invest and which of these two will be a better option for them. Both post office 5-year NSC and 5-year bank fixed deposit qualify for tax benefits under Section 80C of the Income Tax Act. In the case of bank FDs, the tax benefit will only be applicable to the specified deposits made in the 5-year tax-saving FD.


 Bank FD - 5 Year Tax-Saving FD

Bank FD - 5 Year Tax-Saving FD

To secure tax benefits, choose a 5-year tax-saving bank fixed deposit at any private, public, or small finance bank. The deposit can be done either online through net banking or in person at a bank location. One can make an instant investment and receive a tax benefit by doing it online.

Investors must ensure that their PAN is connected to their savings account since the proceeds are remitted straight to one's savings account at the end of the lock-in term of maturity. A maximum of Rs 1.5 lakh can be invested in a 5-year tax-saving bank fixed deposit for tax advantages in a financial year. Despite the fact that the deposit can be made in joint names, the tax advantage is only available to the first holder in whose name the investment was made.

Partially or prematurely withdrawing funds from these bank FDs is not permitted, no lending facility is provided, and the lock-in period is five years from the date of deposit.

Post Office NSC

Post Office NSC

NSC or National Saving Certificate is a tax saving scheme offered by the Post Office. The government sets the rates for post office schemes, including NSC, at the start of each quarter of the Financial Year. This scheme is established primarily for company owners and salaried staff, and it provides a stable income equivalent to fixed deposits.

National Savings Certificates offer tax advantages in addition to a slew of other advantages. Because the investment is backed by the Indian government, it become one of the safest investment destination for investors. 

Currently, 6.8% interest rate is applicable for NSCs bought for a 5-year term. The interest is compounded annually but payable at maturity. These interest rates will remain fixed for the whole term of investments. NSC is available at all Indian post offices; they can be purchased singly, jointly, and on behalf of minors.

Premature withdrawal or closer are not allowed in NSC, but it may not be prematurely closed before 5 years except the condition such as On the death of a single account, or any or all the account holders in a joint account, On forfeiture by a pledgee being a Gazetted officer, and On order by the court. 

Bottom Line

Bottom Line

An investor's rate stays constant for the duration of their investment in any of these two tax-saving choices. Even if there is a tax advantage on the investment made in both of these tax-saving alternatives, the interest gained in the year it is accrued is fully taxable and must be included in the income under the heading "Income from other sources."

However, experts advise that while deciding between the two assets, one should consider more than just the return rate. Compounding is done on a quarterly basis in bank FDs and on a yearly basis in NSCs. 

Both the schemes are good for investment and tax saving making them excellent for ultra-conservative investors. Investors should do research and then make the investment destination that also fits their personal finances.

Story first published: Saturday, March 26, 2022, 14:50 [IST]
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