National Savings Certificate: Can NSC interest rate change affect existing investments?

A change in the National Savings Certificate (NSC) interest rate can affect the total amount a new investor may receive upon maturity after five years. However, existing NSC account holders will not be affected.

As the Finance Ministry is expected to announce the National Savings Certificate interest rate for the October-December quarter of FY 2025-26 on September 30, 2025, here's a look at how a change in interest rate affects NSC account holders.

How does NSC interest rate work?

The Finance Ministry declares NSC interest rate every quarter. The interest on NSC is compounded annually, which means that the accumulated interest gets added to the account balance at the end of every financial year.

The National Savings Certificates (VIII-Issue) Scheme, 2019 says the following about interest payment:

"The deposit shall mature on completion of five years from the date of the deposit. Amount of maturity may be repaid to the account holder on an application in Form-2 submitted to the accounts office."

At present, the NSC interest rate is 7.7%. The scheme is a popular as a safe fixed-income option for millions of depositors across the country. More so because NSC not only provides guaranteed returns but also allows tax deduction up to ₹1.5 lakh under Section 80C in the old tax regime.

Impact of NSC interest rate movement

When the finance ministry increases the NSC interest rate, new investors benefit. Old NSC deposits continue to earn previous interest rate till maturity.

Calculation shows that for new investors, even a small increase of 0.5% can boost the maturity value over 5 years. For example, an investment of ₹10 lakh at 7.7% interest can grow to approximately ₹14,49,034 in 5 years. If the rate is increased by 0.5% to 8.2%, the final corpus after 5 years may grow to approximately ₹14,82,983.

A cut in the NSC interest rate can reduce the long-term maturity corpus. The calculation shows that even a minor reduction of 0.5% can translate to a shortfall in the maturity amount. In the above example, if the NSC rate drops from 7.7% to 7.2%, the maturity corpus could reduce to approximately ₹14,15,709.

More about the impact of interest rate changes on other small savings schemes:

What should NSC investors do?

Ahead of the announcement, NSC account holders are expecting a hike in the interest rate from the current 7.7%. However, nothing can be confirmed at present. The government may or may not increase the NSC interest rate.

Investors cannot control interest rate changes. However, they can optimise their contributions by saving as much as possible. One may consider investing in NSC for stable and guaranteed returns for goals that are 5 years away. Further, balancing your NSC investments with options like equity mutual funds may help you generate higher inflation-adjusted returns over the long term.