NSC vs Tax-Saving FD: Which Earns You More in 5 Years?

Both NSC and tax-saving FDs lock your money for 5 years and save tax under 80C. But NSC compounds quarterly while most bank FDs pay interest annually — making a real difference to your final payout.

Here's what happened: NSC currently earns 7.7% per annum (compounded annually, paid at maturity), backed by the Government of India and sold at Post Offices.. Tax-saving FDs at most major banks offer 6.5%–7.25% per annum, with interest taxable every year even though money is locked for 5 years.. Both instruments qualify for ₹1.5 lakh deduction under Section 80C, but their tax treatment on interest earned is completely different..

What you should do: Compare: Check your bank's current tax-saving FD rate against NSC's 7.7% before investing this financial year — even a 0.5% gap matters on ₹1.5L.. Calculate your tax hit: If you are in the 30% bracket, FD interest is taxed every year reducing real returns — factor this into your NSC vs FD decision.. Invest before March 31: Both instruments must be purchased in the current financial year to count for 80C deduction — don't wait till the last week when Post Office queues spike..

NSC interest is deemed to be reinvested every year — so it qualifies for 80C deduction each year on its own, giving you a small extra tax benefit most investors miss.