Tax saving fixed deposits (FDs) and the National Savings Certificate (NSC) are both safe and reliable instruments for conservative investors to earn consistent returns.
When you compare the rate of interest on these options to simply parking your money in a savings account, the yield is demonstratively higher. These are also great tools for goal-oriented savings and can be auto deducted from your bank account to ensure monthly contribution towards the lumpsum.
However, it is advisable to research and compare both options to your own specific needs before making a choice. Notably, tax saving FDs are offered by public and private banks in India, while the NSC is offered by India Post.
So, if you are confused over whether to choose tax saving FDs or National Savings Certificate, check the rate of interest, benefits, eligibility and other details below, and then make a choice based on what works best for your specific needs.
Tax Saving FD: How does this work and what are the benefits?
A Tax Saving FD is a fixed deposit option aimed at increasing your savings and reducing tax burden, under the Old Regime. Notably, this deposit type mandates a five-year lock-in period, with interest earned calculated as income only in the year of withdrawal.
A tax saving FD is part of the deductions allowed under Section 80C of the Income Tax Act, which also includes your public provident fund, EPFO and NPS. Hence, the maximum investment you can make each year for tax benefit is limited to ₹1.5 lakh.
- The SBI website notes that in case of a joint account, the FD will be issued jointly to two adults or to an adult and a minor. Here too, in case of death of first account holder in joint account, the other holder is entitled to withdraw the deposit before its maturity.
- Tax saving FDs are a low-risk investment option and offer steady returns.
National Savings Certificate: All you need to know
Offered by India Post branches across India, the National Savings Certificate (NSC) has a fixed annual interest rate of 7.7% this year, according to the official website.
Further, it requires a minimum initial investment of ₹1,000, with subsequent deposits of at least ₹100 each month over a five-year period. There is no upper limit, but anything above ₹1.5 lakh in a year would not qualify for Section 80C deduction.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
