What is the Difference Between NPS & FD 2025

In India, retirement planning can be done through several investment options, among which Fixed Deposits (FDs) and the National Pension Scheme (NPS) are widely considered. 

Okay, but how do they differ? An FD provides security with guaranteed returns. The interest rate is fixed at the time of opening the account and remains unchanged throughout the tenure. At maturity (in the cumulative option), an investor receives the principal + compounded interest. 

On the other hand, NPS is a government-sponsored pension plan launched in 2004 and later extended in 2009 to cover employees across public, private, and unorganised sectors (except the Armed Forces). The NPS scheme allows individuals to make monthly investments and build a regular retirement pension.

Need for information? In this article, firstly, you will learn what an NPS scheme is, how it works, and the various NPS scheme details. Then, we will understand some major differences between NPS vs. fixed deposits.

What is the National Pension Scheme (NPS) 2025?

The National Pension Scheme (NPS) is a retirement plan managed by the Pension Fund Regulatory and Development Authority (PFRDA) under the Central Government. When you invest in NPS, you can choose between two types of accounts:

• Tier-I account (mandatory for all subscribers): This is a non-withdrawable account.
• Tier-II account (optional and works like a savings account): This is a withdrawable account, and as a subscriber, you can withdraw funds anytime.

Additionally, the NPS Tier I contributions qualify for tax deductions. Let’s see how:

Employee’s contribution	Employer’s contribution
If you contribute to NPS Tier I, up to 10% of your salary (Basic + DA) is tax-deductible under Section 80CCD(1). This deduction is subject to the overall ceiling of ₹1 lakh under Section 80CCE.	Your employer can also contribute up to 10% of your salary (Basic + DA) to your NPS account.  This amount is tax-free in your hands under Section 80CCD(2). Importantly, this benefit is over and above the ₹1 lakh limit under Section 80CCE.

How Does the NPS Scheme 2025 Work?

In the National Pension Scheme (NPS), the money you invest is collected and invested in different assets such as:

• Equities
• Corporate bonds
• Government bonds
• Debt funds

The returns you earn may depend on how these assets perform in the market.

NPS vs. Fixed Deposit: Major Differences You Must Know in 2025!

Both NPS and FDs are popular retirement planning products. But they differ in terms of:

• Investment flexibility
• Liquidity 
• Market exposure

You must realise that FD is mainly for guaranteed returns and does not expose you to market fluctuations. In contrast, NPS offers you market-linked growth. For more clarity, check out some primary NPS vs. fixed deposit differences below:

1. How Flexible Is Your Investment Schedule

In NPS, you can contribute at your own pace and as per your capacity. However, you must contribute at least ₹1,000 per year to maintain your pension account. There is no maximum limit. You can also choose how your money is managed. The two options you get are:

• Under “Auto Choice”, a professional fund manager decides the asset allocation for you. 
• Under “Active Choice”, you decide where your money goes among equities, bonds, and government securities. 

On the other hand, an FD is less flexible, and you must invest a lump sum at once. You don’t get the option to make any monthly or quarterly deposits. 

Finding NPS too complex? You can explore multiple FD options on the GoldenPi platform. The booking process is 100% online and can be completed within minutes! 

2. How Much Can You Withdraw and When

As mentioned before, NPS offers two account types: Tier I and Tier II. The liquidity rules in both these accounts differ. Let’s see how:

Tier I Account (Retirement Account)

Tier II Account (Voluntary Account)

On Retirement (at 60 years):  You must use at least 40% of your total savings to buy a life annuity from an insurer approved by PFRDA/IRDA. This annuity gives you a regular pension.  The remaining amount (up to 60%) can be withdrawn as a lump sum. On Resignation (before 60 years): You must use 80% of the savings to buy an annuity. Only the remaining 20% can be withdrawn. On Death:  The entire balance in the account is given to your nominee.

Withdrawals can be made anytime. To withdraw, you need to submit a form (UOS-S12) to your associated Point of Presence (POP-SP). The amount you receive depends on the Net Asset Value (NAV) on the processing day.  After processing, funds are transferred to your registered bank account within 3 working days.

Now, if we compare, FDs are not that complex! They have a fixed duration (chosen by you) and you are allowed to withdraw funds before maturity. However, the bank or NBFC may charge a penalty by reducing your interest rate. 

3. When Do You Earn Market-Linked Returns

NPS is linked to the financial markets. Your returns are not guaranteed and depend on market performance. However, the NPS scheme only invests up to 50% in equities, which can somewhat balance growth potential with risk. Over the long term, due to equity exposure, NPS returns may be higher than traditional savings products, like fixed deposits. 

Now, in contrast, FDs provide guaranteed returns. The interest rate is fixed at the time of investment and does not change. While this makes FDs safe, the returns are often lower compared to NPS (particularly after accounting for inflation).

NPS vs. Fixed Deposit: Detailed Comparison Table

Still confused? When planning your retirements, you should always try to balance safety with growth. Always remember that FDs give assured returns, while the NPS builds long-term wealth through market exposure. 

To make a better choice, check out the detailed FD vs. NPS comparison below:

Feature	Fixed Deposit (FD)	National Pension Scheme (NPS)
Tenure	7 days to 10 years	Until retirement (mandatory contributions till age 60)
Risk	Low risk  Insured up to ₹5 lakhs by DICGC	Moderate to high risk  The NPS scheme invests in equities
Returns	Returns are fixed  They are based on the interest rate chosen	Market-linked returns May be higher in the long run, but not guaranteed
Premature Withdrawal	Allowed, but a penalty applies in the form of reduced interest	Allowed only after 3 years Maximum 25% of contributions (up to 3 times)
Tax Benefits	Tax-saving FDs are eligible for a deduction up to ₹1.5 lakhs under Section 80C	Employee contribution to Tier I is allowed up to 10% of salary (Basic + DA), under Section 80CCD(1), within the ₹1.5 lakh limit of Section 80C. Extra ₹50,000 under Section 80CCD(1B), over and above the Section 80C limit. Employer Contribution, up to 10% of salary (Basic + DA), deductible under Section 80CCD(2), over and above the ₹1.5 lakh limit.
Eligibility	Any Indian citizen can apply.	Only Indian residents aged 18 to 65 years Not available to armed forces personnel

Looking for the Safety of FDs? Book Your Digital FD Online Via the GoldenPi Platform!

So, now, you know that FDs and NPS are two different financial products used in retirement planning. An FD provides guaranteed returns with fixed interest rates. It could be a safe choice for conservative investors who prefer stability. 

In contrast, the National Pension Scheme is market-linked and designed to create a pension income after retirement. Since NPS invests in equities, it may generate higher returns over the long term (not guaranteed). 

Are you looking for investment options with no market exposure? You can explore multiple FD products available on the GoldenPi platform. Some issuers you can consider are:

• Suryoday Small Finance Bank
• Unity Small Finance Bank
• Bajaj Finance
• Mahindra Finance
• Shriram Finance

These options offer competitive returns, and you can use them to build a secure retirement portfolio. Visit the GoldenPi platform today to check them out.

NPS vs. Fixed Deposit FAQs

1. What is the National Pension Scheme of the Government of India?

The NPS is a government-backed retirement plan regulated by PFRDA. It allows individuals to invest regularly during their working years. At retirement, part of the corpus can be withdrawn, while the rest is used to buy an annuity for a regular pension.

2. How to Open an FD Account Online?

You can open an FD online through the GoldenPi platform. All you have to do is browse and compare FD options from different issuers. Choose the one that suits your needs and complete the KYC process (if not already registered). Lastly, make the payment, and an FD receipt will be sent to your registered email.

3. NPS vs FD, Which is Better in 2025?

NPS is market-linked and may offer higher returns than FDs in the long term (not guaranteed). In contrast, with FDs, you are not exposed to market fluctuations and can earn assured returns. 

The choice between the two depends on your risk appetite and whether you prioritise security (FD) or long-term wealth creation (NPS).

4. How to Withdraw from NPS Tier I ?

In NPS Tier I, withdrawals are allowed only under certain conditions. At retirement, 60% of the savings can be withdrawn, and at least 40% must be used to buy an annuity.

If you exit early, it requires at least 80% annuitisation. Lastly, in case of death, the full amount goes to the nominees.

Disclaimer:

This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.

Fixed Deposit schemes are regulated by the Reserve Bank of India. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.