NPS vs Fixed Deposit: Which Scheme is Better to Invest?

 NPS vs Fixed Deposit

The National Pension System is a voluntary pension scheme that lets you plan for your retirement by investing a fixed amount every month. As it belongs to the EEE category, it is a tax-free investment that attracts many investors each year. However, the NPS withdrawal policies might not suit everyone. 

NPS vs Fixed Deposit

Fixed deposit generates interest income at a fixed interest rate. A one-time lump sum amount needs to be deposited to reap high returns at maturity. The benefit with fixed deposits is that you don’t have to wait for a long time to withdraw the deposits. Some banks and financial institutions allow you to withdraw the entire amount post completion of 3 months from the deposit date. With FDs, you can also choose to withdraw the interest periodically as per your financial needs. Some of the basic differences between these instruments are highlighted in the below table: 

Features

NPS 

Fixed Deposits 

Investment method

A fixed sum needs to be paid every month in the NPS account.

A one-time lump sum is to be deposited which attracts interest at fixed rates till maturity. 

Tenure 

Depends on the age at which you start investing in NPS. 

Varies from one bank to another. Generally a tenor range from 6 months to 10 years is available. 

Rate of Interest 

Not fixed 

Fixed throughout the FD tenor

Withdrawal norms 

For Tier-1 accounts, premature withdrawals are not permitted. For Tier-2 accounts, premature withdrawals are permitted only for major reasons and only after completion of 3 years. 

Premature withdrawals are permitted. You can either withdraw the partial or entire deposit before maturity. However, premature withdrawals might result in a penalty that can be 1 or 2% of the interest earnings. 

Interest Payouts 

Not Available 

Available 

Returns 

A 60% of the corpus can be withdrawn post retirement. The remaining 40% is invested in an annuity that provides you with a monthly pension. 

The interest earnings can be either withdrawn periodically or you can choose to receive the interest along with the deposited amount directly at maturity. The interest gets added in the principal after the first interest calculation cycle which results in compounding of returns. 

Though investing in a fixed deposit might seem to be a better option, it might not fetch enough returns as compared to NPS. If you want to learn how to invest money and earn sufficient interest without risking the capital, invest in Bajaj Finance FD. Bajaj Finance FD is offering a high FD interest rate that goes up to 7.05% for senior citizens whereas individuals below 60 can grow their deposits at interest rates of up to 6.80%. Some of the key highlights of this FD scheme include:

Easy withdrawals 

With Bajaj Finance FD, you can withdraw the deposits prematurely once a period of 3 months is completed. Bajaj Finance also provides a collateral-free loan to depositors that can be up to 75% of their deposit value. 

Higher returns 

The interest capitalised by Bajaj Finance FD is much higher than bank FDs. It is possible due to the high FD interest rates associated with this FD scheme. If you invest Rs. 15,00,000 in a bank FD for 3 years, the deposit will grow at an interest rate of up to 5%. On the contrary, Bajaj Finance FD grows your deposits at 6.80%. The below table contains the returns and maturity value of bank FDs and Bajaj Finance FD:

FD plan

Amount

Interest Rate

Tenor

Interest Gains

Maturity Amount

Bank FD

Rs. 15,00,000

5%

3 years

Rs. 2,41,132

Rs. 17,41,132

Bajaj Finance FD

Rs. 15,00,000

6.80%

3 years

Rs. 3,27,280

Rs. 18,27,280

Stable investment 

Bajaj Finance FD is a stable investment platform to grow your returns. The CRISIL credit ratings of FAAA/stable and ICRA credit ratings of MAAA/stable indicate your investment will remain with this FD scheme. 

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