Investors can choose from a variety of instruments under government-backed post office savings schemes, depending on their objectives. But those seeking higher returns than what bank fixed deposits offer can speculate on post office fixed deposits or National Savings Certificates (NSC). The fact that both these products offer guaranteed interest payments and capital protection makes them ideal for investors seeking liquidity, returns and tax-efficient investment options. Investors should be informed about the advantages and disadvantages of both Post Office Fixed Deposit and NSC before making a final choice. Let’s evaluate both and decide on where to bet.
post office fixed deposit
Similar to bank fixed deposits, the post office time deposit account (TD) offers guaranteed returns. Post office FDs require a minimum deposit of INR 1000, and there is no limit on the maximum deposit amount. As per 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 applies to investments made under the 5-year TD, which allows maximum tax deductions. 1.5 lakh in each financial year.
Investors opening a post office fixed deposit for one year can get an interest rate of 6.6% per annum; 6.8% for accounts opened for two years; 6.9% for accounts opened for three years; And the maximum return is 7% for accounts opened for five years. Premature withdrawal options are available with post office fixed deposits, and depositors can also choose to grow their accounts after their accounts mature. Any number of accounts can be created by an investor, and post office fixed deposit accounts can also be pledged while applying for the loan.
National Savings Certificate (NSC)
Like Post Office Fixed Deposits, National Savings Certificates (NSC) also come with a tenure of 5 years and the same 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 without any upper limit.
As a result, Rs. 1000 will go up to Rs. 1403 five years later. Under the scheme, any number of accounts can be opened, and the deposits, like post office fixed deposits, are eligible for tax deduction. 1.5 lakh annually under section 80C of the Income Tax Act. The account will mature after five years from the date of deposit, however, the account can be prematurely closed before that period in case of death of the account holder.
The NSC can be guaranteed to request the loan and can be transferred from one person to another when the account holder passes away, either to joint holders or to nominees/legal heirs.
Where to invest?
CA Manish P Hinger, Founder, Fintoo said, “NSC is a type of fixed deposit where the investment is made for a fixed tenure of 5 years and the interest is compounded annually but is paid at the end of the 5 year tenure. The current rate of interest for both NSC and 5-year Post Office Fixed Deposit is 7% per annum, from the point of view of tax benefits, both are eligible for deduction under 80C. 1.5 lakh as per the Income Tax Act. However, it is to be noted that the interest on both the mentioned is taxed as per the tax slab rate of the individual. Please note that NSC can also be used as collateral for availing loans from banks.
“While both the options are suitable for conservative investors looking for capital preservation and tax savings as well as fixed returns, NSCs have an added advantage where the interest earned in NSCs is reinvested and thus the reinvested interest amount is years is also eligible for deduction under section 80C. This makes NSC a better option than post office FDs,” he claimed.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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