NSC vs Tax-Saving FD: Which 5-Year Option Pays More?
NSC at 7.7% vs 5-year tax-saver FD compared on post-tax return, TDS, liquidity and safety, with a ₹1.5 lakh worked example. Rates as of October 2026.
In this article
At October 2026 rates, the National Savings Certificate (NSC) pays 7.7% a year, compounded annually, while 5-year tax-saver FDs at large banks pay roughly 6% to 6.5% for the general public. Both lock your money for five years and both qualify for the old-regime deduction, but NSC usually delivers more after tax, carries a sovereign guarantee and has no TDS. A tax-saver FD can make sense mainly for senior citizens who get a higher rate or for anyone who needs quarterly interest payouts.
What each product is
National Savings Certificate (NSC VIII Issue)
A 5-year savings certificate issued by the Government of India through post offices.
- Rate: 7.7% a year for certificates bought in October–December 2026, compounded annually and paid at maturity. The rate on the purchase date is fixed for the full five years.
- Investment: Minimum ₹1,000, in multiples of ₹100; no maximum.
- Who can buy: Resident individuals, including joint holders and a guardian on behalf of a minor. NRIs cannot buy new certificates.
- Form: Issued electronically to your post office account or passbook.
Tax-saver fixed deposit
A bank FD with a 5-year lock-in that qualifies for the deduction.
- Rate: Set by each bank. In early October 2026, SBI listed 6.05% for 5–10 year deposits for the general public; private and small finance banks may pay more. Senior citizens usually receive an extra margin.
- Investment: Usually ₹100 to ₹1,000 minimum; only ₹1.5 lakh a year counts for the deduction.
- Interest: Paid quarterly, or reinvested (cumulative).
- Lock-in: 5 years; cannot be broken or pledged.
NSC vs tax-saver FD: comparison table
| NSC | Tax-saver FD | |
|---|---|---|
| Return (Oct 2026) | 7.7%, compounded annually | Varies by bank (for example 6.05% at SBI for the general public) |
| Rate locked for 5 years | Yes | Yes |
| Interest payout | Only at maturity | Quarterly or at maturity |
| Deduction on investment | Old regime only, within ₹1.5 lakh | Old regime only, within ₹1.5 lakh |
| Accrued interest as deduction | Years 1–4 interest qualifies | No |
| Tax on interest | Slab rate | Slab rate |
| TDS | None | Yes, above the TDS threshold |
| Early exit | Only on death, court order or pledge forfeiture | Not allowed |
| Loan against it | Can be pledged | Cannot be pledged |
| Safety | Government of India | DICGC cover up to ₹5 lakh per depositor per bank |
Worked example: ₹1.5 lakh for 5 years
Assume you invest ₹1.5 lakh in October 2026, you are in the 30% slab under the old regime (31.2% with cess), and you hold to maturity. The FD rate is SBI's general rate of 6.05%, compounded quarterly.
NSC at 7.7%, compounded annually Maturity = 1,50,000 × (1.077)^5 ≈ ₹2,17,355 Total interest ≈ ₹67,355
Yearly interest accrual:
| Year | Interest accrued | Counts towards deduction? |
|---|---|---|
| 1 | ₹11,550 | Yes |
| 2 | ₹12,439 | Yes |
| 3 | ₹13,397 | Yes |
| 4 | ₹14,429 | Yes |
| 5 | ₹15,540 | No (received at maturity) |
Tax-saver FD at 6.05%, compounded quarterly Maturity = 1,50,000 × (1 + 0.0605/4)^20 ≈ ₹2,02,526 Total interest ≈ ₹52,526
After tax (ignoring the deduction on the original ₹1.5 lakh, which is the same for both)
- NSC interest after 31.2% tax: ₹67,355 × 0.688 ≈ ₹46,340
- FD interest after 31.2% tax: ₹52,526 × 0.688 ≈ ₹36,138
NSC ends about ₹10,200 ahead on a ₹1.5 lakh investment. There is a further twist: the ₹51,815 of NSC interest accrued in years 1–4 can be claimed as a fresh deduction in each of those years, if you have room left in the ₹1.5 lakh cap. If you already fill the cap with EPF and other items, this extra benefit is worth nothing to you.
These numbers are illustrative and assume the 30% slab. Run your own bank's rate through the FD calculator to compare.
Tax rules in FY 2026-27
The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, and the deduction is now under Section 123 read with Schedule XV (formerly old Section 80C). Both NSC and 5-year tax-saver FDs remain on the eligible list, and the overall cap stays at ₹1.5 lakh. For the full list, see tax-saving options under 80C.
NSC
- Interest is taxable every year on an accrual basis, even though you receive it only at maturity. Declare it under "income from other sources" each year, rather than all at once in year 5, to avoid a lumpy tax bill and mismatches in your return.
- Interest for years 1–4 is deemed reinvested and can be claimed under the deduction, within the shared cap.
- No TDS, so you must declare and pay the tax yourself.
Tax-saver FD
- Interest is taxable every year at slab rate, whether paid out or reinvested.
- The bank deducts TDS under Section 393 of the new Act (old Section 194A) at 10% if total interest from that bank exceeds ₹50,000 in a year (₹1 lakh for senior citizens). Submit Form 15G or 15H if your final tax is nil.
Under the new regime
Neither product gives a deduction under the new regime. Both then compete simply as 5-year fixed-income products, and NSC's higher rate usually wins unless a bank offers you more. Choosing between regimes? See new vs old tax regime.
When a tax-saver FD can still make sense
- Senior citizens: Banks commonly add 0.50 to 1 percentage point for seniors. Small finance banks may offer seniors rates close to or above NSC's 7.7%. A senior also benefits from the higher ₹1 lakh TDS threshold, the old-regime ₹50,000 interest deduction (old Section 80TTB), and quarterly payouts that NSC does not offer.
- Need for regular income: NSC pays nothing until maturity; a tax-saver FD can pay interest quarterly.
- Convenience: Tax-saver FDs can be opened instantly through net banking. NSC is available through the India Post system, which some investors find less convenient.
Remember that bank deposits above ₹5 lakh per depositor per bank are not insured; read what happens if a bank fails. This matters more with small finance banks paying higher rates.
When NSC is the better fit
- You are in a higher slab and want the best post-tax fixed return over five years.
- You want a sovereign guarantee with no deposit-insurance limit.
- You do not need interest before maturity.
- You may want to pledge the certificate for a loan later, which a tax-saver FD does not allow.
What about PPF and ELSS?
If you are choosing a tax-saving product, NSC and tax-saver FDs are the two with a fixed 5-year term. PPF currently pays 7.1% with tax-free interest but a 15-year lock-in, and ELSS has a 3-year lock-in with equity risk. For a side-by-side look at those, read PPF vs FD vs ELSS.
How to buy
NSC: Visit a post office with KYC (Aadhaar, PAN, photo) and a cheque, or buy through India Post's internet banking if you hold a post office savings account. The certificate is credited electronically.
Tax-saver FD: Open through your bank's net banking or app by choosing the "tax saver" option and a 5-year tenure. Provide PAN to avoid higher TDS.
Key takeaways
- NSC pays 7.7% for October–December 2026, compounded annually and fixed for five years; tax-saver FD rates vary by bank.
- Both qualify for the ₹1.5 lakh deduction under old Section 80C / Section 123 only in the old regime.
- Interest on both is taxable; NSC has no TDS and its years 1–4 interest can be claimed as a deduction.
- On ₹1.5 lakh at a 30% slab, NSC ends roughly ₹10,000 ahead of a 6.05% tax-saver FD after tax.
- Tax-saver FDs can suit seniors who get higher rates and want quarterly payouts.
- Neither can be broken early in normal circumstances, so invest only money you can leave for five years.
Frequently asked questions
Which is better, NSC or tax-saving FD?
At October 2026 rates, NSC pays 7.7% compounded annually, which is higher than most large banks' 5-year tax-saver FD rates for the general public. A tax-saver FD can still suit senior citizens who get a higher rate and want quarterly payouts.
Is NSC interest taxable?
Yes. NSC interest is taxable at your slab rate. However, interest for the first four years is treated as reinvested and can be claimed within the ₹1.5 lakh deduction under the old regime, and no TDS is deducted on NSC.
Can I break a tax-saving FD or NSC before 5 years?
Generally no. A tax-saver FD cannot be withdrawn or pledged before 5 years. NSC can be encashed early only on the holder's death, under a court order or on forfeiture by a pledgee, though it can be pledged as security for a loan.
Do NSC and tax-saving FD give a deduction under the new tax regime?
No. The deduction under old Section 80C, now Section 123 of the Income-tax Act, 2025, is available only if you opt for the old regime. Under the new regime both are simply 5-year fixed-income products with taxable interest.
This article is for general education and is not personalised financial, tax or legal advice. Rates and rules are as of 19 Oct 2026; confirm current terms with your lender, AMC or a qualified adviser.
