The government retained interest rate for the National Savings Certificate (NSC) accounts at 7.7 per cent per annum – higher than many bank fixed deposits of similar tenure when it left small savings rates unchanged for the April-June 2026 quarter. For investors seeking predictable returns with sovereign backing, NSC remains firmly in consideration.
Rates unchanged, but relative appeal intact
The Finance Ministry’s decision to hold rates for the first quarter of FY27 (April 1 to June 30, 2026) means NSC continues to deliver 7.7 per cent annually, compounded. When several banks are offering less than 7 per cent interest on five-year fixed deposits, the scheme remains lucrative.
For risk-averse investors, particularly retirees and those building a fixed-income ladder, this stability reduces risk. Unlike market-linked instruments, NSC shields investors from interest rate volatility over its tenure.
How NSC works
NSC is a government-backed savings instrument available through post offices. Its structure is simple and designed for long-term, low-risk investing:
Tenure: Fixed at five years
Interest rate: 7.7per cent per annum (compounded annually)
Minimum investment: Rs 1,000
Additional investment: In multiples of Rs 100
Maximum limit: No upper cap
Interest is not paid out periodically. Instead, it is reinvested automatically each year and added to the principal, boosting the final maturity value.
Tax treatment
One of NSC’s key features is its tax positioning:
Section 80C benefit: Investments qualify for deduction up to Rs 1.5 lakh under the old tax regime
Interest taxation: Interest earned each year is taxable, but it is deemed reinvested and also qualifies for Section 80C deduction (except in the final year)
This makes NSC particularly useful for taxpayers still following the old regime. However, for those under the new tax regime, the absence of deductions reduces its tax efficiency.
Liquidity constraints that investors should note
A key trade-off with NSC is limited liquidity. Premature withdrawal is tightly restricted and allowed only under specific conditions:
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Death of the account holder -
Court order -
Forfeiture by a pledgee (as per scheme rules)
Even where early closure is permitted, return depends on how long the investment has been held:
Within one year: Only principal is returned
Between one to three years: Interest paid at post office savings account rate
After three years: Returns calculated as per applicable scheme provisions
This makes NSC unsuitable for investors who may need access to funds in the short to medium term.
Where NSC fits in a portfolio
NSC is best positioned as a core fixed-income allocation for conservative portfolios. It works well for:
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Investors seeking capital protection with assured returns -
Individuals planning medium-term goals (5 years) -
Taxpayers using the old regime and looking to optimise Section 80C
However, it may not be ideal for:
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Investors needing liquidity or flexibility -
Those in the new tax regime, where tax benefits are absent -
Individuals seeking inflation-beating or market-linked growth