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When building a retirement corpus, choosing the right investment option is crucial. Comparing the features of NPS vs FD becomes essential as both these instruments can help you achieve this.
A fixed deposit is a low-risk investment, offering guaranteed returns on the invested sum. The principal amount is then locked in for a predetermined period of your choice. The issuer determines the interest rate, which remains constant throughout the investment duration.
The National Pension Scheme- (NPS) is a government-sponsored pension program that started in 2004. It allows you to make small contributions from your salary every month to enjoy a regular source of income post-retirement.
Both these investment instruments have different features while catering to similar long-term financial needs. Check the table for a detailed comparison between NPS and fixed deposits:
Feature |
NPS |
FD |
Tenor |
Until retirement |
Options range between 7 days and 10 years |
Interest Rate |
Depends on the performance of the underlying assets |
Differs across FD issuers, depending on the investor age (non-senior citizen and senior citizen) |
Safety |
Government-backed scheme |
FDs issued by banks are insured up to ₹5 Lakhs per depositor by the Deposit Insurance and Credit Guarantee Corporation |
Returns |
Market-linked |
Depends on the interest rate |
Tax Benefit |
Up to ₹2 Lakhs per year under sections 80C and 80CCD |
₹1.5 Lakhs per financial year for tax-saver FDs issued by banks under Section 80C of the Income Tax Act, 1961 |
Premature Withdrawal |
Only after 3 years; you can exit before 3 years by purchasing an annuity of at least 80% of the corpus |
Permitted but the withdrawal may be subject to a penalty |
Eligibility |
Indian citizens between the age group of 18-70 years, except those belonging to the armed forces |
All Indian citizens |
Note: The terms may vary based on policy changes made by the issuers. Check the latest terms before investing in a scheme.
There is no standard choice when comparing NPS vs fixed deposit as it depends on your financial goals. If you wish to build a corpus but are a risk-averse investor, FDs could be an ideal investment option.
Alternatively, if you want to build a larger retirement corpus and earn higher returns through market-linked investment, NPS may be the better fit. For tax benefits, you can invest a large corpus at once into a tax-saving FD.
To calculate the interest you can earn, the FD monthly interest calculator is an efficient online tool. With it, you can plan and invest efficiently. You can access this tool as well as compare FD schemes from different FD issuers on Bajaj Markets.
Fixed Deposit and Other Investment Comparisons |
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Frequently Asked Questions
What are the tax benefits that one can enjoy with NPS and FD investment?
With an NPS, you can enjoy tax deductions of up to ₹1.5 Lakhs under Section 80CCE and up to ₹50,000 under Section 80CCD (1B). On the other hand, you can get tax benefits of up to ₹1.5 Lakhs under Section 80C if you invest in a tax-saver FD issued by a bank.
Which scheme offers more diversification: FD or NPS?
Since NPS is a market-linked tool which allows you to invest across corporate debt, alternative assets, and government debt.
What are the penalty charges if I prematurely withdraw the funds from the fixed deposit?
The penalty levied for premature withdrawal varies across issuers. You should check these terms on the issuer’s official website or at their nearest branch before investing.
Will the government contribute towards my NPS corpus?
No, the government will not contribute any sum towards your National Pension Scheme corpus.
Is NPS better than FD?
If you wish to make contributions every year and can handle the market exposure risk, then NPS could be a suitable choice for you.
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