FD vs NPS: Making the Right Choice | Investment Comparison

Invest Now In FD

Book your FD in 4 simple steps

When building a corpus for retirement, investing in a long-term savings scheme makes sense. Both fixed deposits and the National Pension Scheme (NPS) can help you achieve this.

However, both come with their set of benefits and drawbacks, which you must evaluate before deciding where to invest your money. Read on to learn about NPS vs. FD, their pros and cons, and which investment tool is better.

Fixed Deposit Overview

A fixed deposit plan is a risk-free investment tool that offers investors guaranteed returns. An FD locks in the money you invest for a given period, varying from 7 days to 10 years.

The issuers fix the interest rates when you open the account, which remains constant throughout the investment period, ensuring stable returns. However, the interest rates applicable will vary as per the tenor you choose.

Note that the principal amount plus the compounded interest on the sum is payable only at the end of this investment tenor. This is in the case of a payout at maturity (cumulative) option.

On the other hand, if you opt for a non-cumulative FD, you can earn interest income at specific intervals (monthly, quarterly, half-yearly, annual) based on the option you choose.

NPS Overview

NPS, or the National Pension Scheme, is a government-sponsored pension program that started in 2004.

Under this scheme, you can invest small proportions of your salary every month to ensure a steady pension during your retirement years.

The Pension Fund Regulatory and Development Authority (PFRDA) administers and regulates the NPS scheme.

FD vs NPS: Head-to-Head Comparison

For a detailed comparison between NPS and fixed deposit, check the table provided below:

Feature	NPS	FD
Tenor	Until retirement; can exit only after 5 years	Option to choose tenor between 7 days to 10 years
Interest Rate	Depends on the performance of the underlying assets	Average interest rate ranges between 5.35% and 5.90% in FY22-23; the FD rates for senior citizen is marginally higher
Safety	Well-regulated, but returns depend on the investment and market, which is risky	The investment is completely safe, and the returns are guaranteed
Returns	Market-linked	Depends on the interest rate
Tax Benefit	Up to ₹2 Lakhs per year	₹1.5 Lakhs per year
Premature Withdrawal	Yes, for certain purposes, but only after 3 years; you can exit before 3 years by purchasing an annuity of at least 80% of the corpus	Available, but a penalty may or may not be applicable
Eligibility	Indian citizens between the age group of 18-70 years, except those belonging to the armed forces	All Indian citizens

FD vs NPS - Features & Benefits

Liquidity and Withdrawals

As per the National Pension Scheme details, the NPS scheme offers two types of accounts. These include the default Tier I account and the voluntary Tier II account. You can open a Tier II account if you already have an existing Tier I account.    While Tier II accounts do not have a cap on withdrawals, you can only withdraw from Tier I accounts after the first three years. The withdrawal limit for such accounts is set at 25% of the total contributions, with a maximum limit of 3 withdrawals throughout the tenor. As against this, FDs come with a set lock-in period. You can withdraw the funds from the account, but only after shouldering a reduction in interest rate as a penalty.

Flexibility

The minimum yearly contribution to your NPS account is ₹1,000 for Tier I accounts, respectively. There is no maximum limit to the contributions. Additionally, you can also pick between Auto Choice and Active Choice options to manage your funds. Under the first option, a fund manager handles the investment portfolio. However, in the case of the latter, you get the flexibility to manage the account on your own. Additionally, you also have the flexibility of changing fund managers if the performance of the account is underwhelming. On the other hand, FD investments have a fixed tenor. You have to deposit a lump sum corpus at the time of opening the account.

Market-Linked Returns

NPS is a market-linked pension scheme that derives its returns from investing in various asset classes. Thus, there are certain risks associated with this type of investment. However, the returns are higher than conventional tax-saving tools as it invests a portion of funds in equities. Moreover, giving the investor flexible reign over the investment, the NPS scheme allows for a maximum of 75% investment in equities. This cap also ensures a favorable risk-return quotient that makes the investment more or less safe from market volatility.With a traditional FD, you receive guaranteed returns. However, these returns remain lower than the ones you stand to derive from NPS investments.

Which Investment is Better: FD or NPS?

There is no standard solution to the NPS vs FD dilemma. Preferring one over the other will entirely depend on your investment goals. For instance, an FD is a better option than the NPS if you are trying to meet short-term goals.

Alternatively, if you want higher returns and a larger retirement corpus, NPS may be the better fit. If you are a risk-averse investor, opening an FD makes more sense.

However, if you have the risk appetite to weather market-linked changes, you can opt for a Tier II NPS account to maximise your return.

Similarly, if you are an employed individual, you can keep aside a part of your monthly income in an NPS account. However, if you have a large corpus, you can invest it all at once into a tax-saving FD.

Calculating the monthly return on your fixed deposits can get quite difficult. The FD monthly interest calculator is an efficient online tool that allows you to compute the return on your investments with just a few clicks.

You can access this tool as well as compare different FD schemes from multiple partners on Bajaj Markets.

Fixed Deposit and Other Investment Comparisons
Bonds Vs FD	FD Vs NSC	MIS Vs FD
Certificate Of Deposit Vs Fixed Deposit	FD Vs RD	PPF Vs FD
Corporate FD Vs Bank FD	FD Vs Real Estate	Short Term FD Vs Long Term FD
Cumulative Vs Non Cumulative FD	Fixed Deposit Vs Life Insurance	SIP Vs FD
Debt Funds Vs FD	Fixed Deposit Vs Savings Account	Sukanya Samriddhi Yojana Vs FD
ELSS Vs FD	Liquid Fund Vs FD	Time Deposit Vs Fixed Deposit
Equity Vs Fixed Deposit

Disclaimer

The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be a source of advice or recommending any financial investment advice or endorsement of any sort.

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, trade names, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products.

What are the tax benefits that one can enjoy with NPS and FD investment?

When deciding between FD vs NPS, you must evaluate the taxability of both these schemes. For instance, 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 on FD investment in a year.