Interest rate on 5-year post office National Savings Certificate (NSC) small savings scheme: Currently, National Savings Certificate (NSC), a government-guaranteed small savings scheme, grows your money at 7.7 per cent per annum compounded annually, and comes with a maturity period of five years. This makes it the second-highest interest-paying savings scheme at the post office, after the Senior Citizen Savings Scheme (SCSS) and the Sukanya Samriddhi Yojana, each delivering an 8.2 per cent return compounded quarterly. 

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Here's a list of the top five interest-paying small savings schemes, as of the January-March 2024 quarter, according to the India Post website, indiapost.gov.in: 

Small savings scheme

Interest rate (%)
Sukanya Samriddhi Account Scheme​​ 8.2​
Senior Citizen Savings Scheme​​ 8.2 (quarterly interest Rs 205 for Rs 10,000)
National Savings Certificate (VIII Issue) 7.7 (maturity value Rs 14,490 for Rs 10,000)
Kisan Vikas Patra​​ 7.5 (matures in 115 months)
Mahila Samman Savings Certificate​​ 7.5 (maturity value Rs 11,602 for Rs 10,000)
Monthly Income Account​​ 7.4 (monthly interest Rs 62 for Rs 10,000)
5 Year Time Deposit 7.5 (annual interest Rs 771 for Rs 10,000)

The National Savings Certificate is a certificate deposit scheme, which means it works slightly differently from fixed deposits.

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A certificate deposit, also known as a certificate of deposit, is a financial instrument that provides a guaranteed income at the end of the total, pre-defined maturity period. Although premature withdrawals are permitted, they typically attract a penalty in certificate deposits. However, just like fixed deposit schemes, certificate deposit schemes are equally popular among rather risk-averse investors. 

 
Now, given the 7.7 per cent interest rate applicable to the NSC small savings scheme is compounded annually, here's a table illustrating how initial investments of Rs 10,000, Rs 25,000 and Rs 50,000 grow at the end of each year in this guaranteed income instrument: 
Period Corpus at the end of each year till maturity
Rs 10,000 investment  Rs 25,000 investment Rs 50,000 investment
End of first year Rs 10,770 Rs 26,925 Rs 53,850
End of second year Rs 11,599 Rs 28,998 Rs 57,996
End of third year Rs 12,492 Rs 31,231 Rs 62,462
End of fourth year Rs 13,454 Rs 33,636 Rs 67,272
End of fifth year (maturity) Rs 14,490 Rs 36,226 Rs 72,452

 

However, investors must note that any premature withdrawal, or a withdrawal before the completion of the full five-year period, is only allowed under certain conditions such as the death of the account holder.

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Hence, the amounts at the end of the first, second, third, and fourth years given above are only to understand how the money grows gradually till the investor reaches the end of the maturity period, and are not the amount the investor gets in case the premature withdrawal option is exercised.   

NSC investment limit

One can start an NSC investment at the post office against a minimum deposit of Rs 1,000, and in multiples of Rs 100, without any upper limit, according to the India Post website. 

Income tax benefit

National Savings Certificate deposits qualify for a deduction in taxable income up to Rs 1.50 lakh a financial year under Section 80C of the Income Tax Act, just like five-year fixed deposits.