National Savings Certificate is a saving scheme introduced by the Government of India. It is a government savings bond designed to encourage small and medium salaried individuals to invest and earn guaranteed returns according to the current NSC interest rate. The interest rate of National Savings Certificate is liable to change on a quarterly basis as per the decision of the Finance Ministry.

NSC is a saving instrument that guarantees return owing to National Savings Certificate interest rate. This NSC interest rate is determined by the government from time to time. NSC interest rate today is 6.80 p.a. compounded annually.

Over the years, the interest rate for NSC has declined. This is evident when you take a closer look at the old NSC interest rates vs interest rate of the current NSC Issue VII in 2022. Here’s what the trend has been for NSC interest rates since inception:

As you can see, since inception in 1989, the highest interest rate offered for National Savings Certificate was 12% p.a. This rate of return has now almost half the highest historic NSC returns at 6.8% p.a. since April 2020.

NSC interest rate is subject to change on a quarterly basis as per government policies and prevailing market interest rates. However, once you make an NSC investments the prevailing interest rate at the time NSC investment gets locked in and remains unchanged till maturity. During the investment tenure, the principal amount is compounded annually and the interest earned is reinvested into the scheme automatically for the first 4 years. At the end of 5 years, your NSC investment matures and you receive the accrued interest along with the principal amount invested.

To understand this better, let’s take an example. Suppose you invest Rs. 25,000 in NSC Issue VII at the current 6.9% p.a. interest rate compounded annually. This is how your investment would grow:

NSC is a saving instrument wherein both the initial deposit and accrued NSC interest are subject to a tax deduction under section 80C of the Income Tax Act.

In case, the amount is not claimed as a deduction, interest on NSC is taxable according to the applicable income tax slab rate. In this case, the interest earned from NSC is added to the investor’s total income for the financial year under the head “Income from Other Sources”.

However, NSC is not an Exempt-Exempt-Exempt (EEE) investment unlike the popular Public Provident Fund. NSC interest received by the investor at maturity i.e. at the end of the 5th year is added to the investor’s income for the financial year under the head “Income from other Sources” and taxed as per the applicable income tax slab rate.

National Savings Certificate, NSC is a saving cum investment instrument that offers fixed returns, according to the NSC interest rate set by the Government of India. As the interest rate is fixed for a duration, the returns are guaranteed, making NSC most suitable for individuals who desire to build a corpus with the lowest risk possible.

That said, National Savings Certificate can be ideal for conservative investors, or senior citizens who cannot afford to take high risks. Additionally, being a government-backed saving scheme, there is no risk of default.

NSC can be bought by any individual, given that they are lawful citizens of India. Non-Resident Indians (NRI), and Hindu Undivided Family (HUF) are not eligible for buying National Savings Certificate. Additionally, NSC can be bought individually, or on behalf of a minor.

There are three types of NSC accounts – Individual, joint certificate A and Joint certificate B. Joint A is a category set up for three adults, payable to holders jointly. Whereas NSC Joint certificate B is for three adults, payable to either of the survivor.