NSC Vs 5-year Post Office Time Deposit: Return, tax benefits, liquidity compared


Why invest your money in saving bank account when you have other options to give you higher returns as compared to saving accounts.
The government offers various investment schemes with good returns along with the full security of your money. The most popular schemes are National Savings Certificate (NSC), Fixed Deposits (FDs), 5-year Post Office Time Deposit (POTD), PPF (Public Provident Fund), NPS (National Pension Scheme) and many more.
However, among these schemes, NSC and 5-year Post Office Time Deposit is the topmost choice of the investors. Although both are issued by Post Office and enjoy government status, still there are separate benefits of both of the schemes.
Here is a comparison of the National Savings Certificate (NSC) and 5-year Post Office Time Deposit (POTD) on the basis of various factors including investment limit, Rate of return, Liquidity (Lock-in period) and Tax benefits.
Investment Limit
The minimum lowest investment of Rs. 100 in NSC and Rs. 200 in 5 years POTD. Investments can be done in multiples of Rs.100, Rs. 500, Rs. 1,000, Rs. 5,000 and Rs.10,000. No maximum limit for investment in both schemes
Multiple NSC or POTD may be purchased or opened from a single Post Office and/or from different branches.
The current NSC rate of interest is 7.9% per annum compounded half-yearly but payable at maturity. While the rate of interest on 5-year POTD is 7.7% payable annually but calculated quarterly.
Tax Benefits
As per the Income-tax act, you can enjoy the deduction under section 80C up to Rs 1.5 lakh in both the schemes. However, interests in both schemes are taxable.
Note: TDS is deducted on the interest income as per the applicable rates. However, one can take the benefit of 15G/15H certificate and Senior citizen investors enjoy tax exemption up to Rs 50,000 in a financial year on interest earned from under this scheme.
Liquidity (Lock-in Period)
The NSC has a maturity period of 5 years, which means you can’t withdraw the investment and interest amount before the maturity of 5 years. While the principal invested in 5-year POTD may be withdrawn after 6 months from the date of investment.
In the case of POTD, If a withdrawal is made after 6 months but before 1 year from the date of investment, the investor shall be charged a simple interest as per the prevailing interest (current rate 4 percent).
An investor may get a loan facility for loans such as car loans, home loans, etc. against NSC from any bank at a lower interest rate.

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