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Fixed Deposit vs PPF

Which is better FD or PPF?

Last Updated 26th Jul 2021

Parameter Fixed Deposit (FD) Public Provident Fund (PPF)
Interest rate Up to 6.75 7.1%
Tenure 7 days to 10 years 15 years
Minimum Investment ₹ 100 ₹ 500
Premature withdrawal Allowed Allowed
Regulated by Banks and NBFCs Government of India
Earn upto 6.95% on FD APPLY NOW

What are the difference Between FD And PPF

The Public provident fund and fixed deposits are the two safest and popular forms of savings. Though both are investment instruments, the differences between PPF and FD are huge. Each instrument comes with its own set of features and benefits. In this article, we will discuss in detail about both the instruments.

Public Provident Fund (PPF)

It is one of the safest and secure investment options in India. Under the PPF account, the money gets locked in for a time period of 15 years, and you can earn compound interest on the same, which is tax-free. However, this can be extended for up to 5 additional years. With the help of this investment scheme, you can build a corpus for your child’s education. Currently, the interest rate offered on PPF is 7.1 percent. A PPF account can be easily opened in a nearby bank branch or post office. Few banks also allow you to open PPF accounts online. The minimum annual amount that needs to be deposited is ₹ 500, while the maximum amount is ₹ 1.50 Lakh in a financial year. Either father or mother can open a PPF account on behalf of a minor. Both the parents are allowed to open a separate account in the name of the same minor.

Fixed Deposits ( Fds)

A fixed deposit is also one of the most popular and secure investment instruments as it comes at a higher rate of interest than a regular savings account and offers guaranteed returns. Currently, fixed deposits offer you an interest rate of 8 - 9%. This does not change even in a financial crisis or volatility. In addition, you can open a fixed deposit account easily. You can also opt for a tax-saving FDs as it helps you to save tax on the interest earned. According to the Income Tax Act, investing in tax-saving fixed deposits can help you claim an income tax deduction under section 80C.

Features And Benefits Of PPF And Fixed Deposits

Here’s a brief comparative analysis of PPF and FDs:

Tenors: In PPF, your amount gets locked in for 15 years. No other tenor is offered to customers in PPF, so the amount remains locked in for 15 years. However, the tenure can be extended for up to 5 additional years.
The tenure offered in FD ranges from 12 to 60 months. So, you get the flexibility to choose the tenure for FDs, which you cannot with a PPF.

Premature withdrawal: If you invest in PPF, you can withdraw the amount after completion of the 5th year. But only a limited amount can be withdrawn.
You have the option to withdraw an FD prematurely at any time. Also, a loan against your fixed deposits is available.

Loans: You can avail loans against your PPF only after the completion of 3 years. However, a loan against FD is available at any point in time. Tax benefits: Tax benefits are available on both PPF and FD under Section 80C. In the case of FDs, the investment needs to be made for a minimum period to avail the income tax benefit.

Deposit amount: The minimum annual amount that can be deposited is ₹ 500, while the maximum amount is ₹ 1.50 Lakh in a financial year. With FDs, there is no fixed limit.

Rate of interest: The Government sets the rate of interest for PPF. Currently, the interest rate offered on PPF is 7.1 percent. In the case of FD, the interest rate is set by the individual bank or NBFC.

FD v/s PPF. Which is Better?

A comparison between fixed deposit and Public provident funds can be based on certain comparisons:

Parameters Fixed deposits Public Provident Fund
Interest rates The fixed deposit interest rate is regulated by the FD provider and ranges between 1.75% to 6.75%. Public Provident Fund is a Government regulated scheme, that provides an interest rate of 7.1%.
Minimum deposit amount FD's can be opened with a minimum deposit amount of ₹ 100. PPF investment can be made with a minimum amount of ₹ 500.
Payout With fixed deposits one can earn a regular source of income, as FD allows monthly, quarterly, and yearly payouts. The interest on PPF is compounded quarterly and is received at the end of the financial year.
Premature withdrawal/closure Fixed deposits are not meant to allow premature withdrawal or closure. However, keeping in view the fluctuations of the market, most FD providers allow premature withdrawal and closure. Premature withdrawal or closure of FD's provides lower interest rates and may even lead to penalties in some cases. PPF facility allows premature withdrawal of up to 50% of the balance in the PPF account. However, this can be done at the end of 4h year of PPF tenure and is allowed only once each financial year. Premature closure of PPF is allowed after the completion of five years, in special circumstances such as medical emergencies or for pursuing higher education.
Investment habit Fixed deposit investments require one to make a one-time investment. PPF investments can be made in lumpsum, or in installments, in lieu with the maximum limit of ₹ 1.50 Lakh.

What Should you choose - PPF or FD?

Both of these investment options, that is PPF and FD are safe and secure and have their own benefits associated with them. However, choosing between PPF and FD is a subjective choice and should be based out for one’s financial needs. For instance, PPF is a reliable option for long term investment while FD can be made for short term investments as well.

FAQs

Who should choose FD?

Fixed deposit is a good investment option that allows one the flexibility to choose the tenure as per one’s requirement. Apart, FD investments can be made with a minimum amount of ₹ 500. In addition, FD helps one earn regular returns.Thus, Fd investment is worth choosing if you wish to make small investments for small tenures with a regular source of income.

Which is a good investment FD or PPF?

Both PPF and FD have their own associated benefits with each other. Choosing the one that suits the need requires one to make a comparison, as listed below:

Parameter Fixed Deposit (FD) Public Provident Fund (PPF)
Interest rate Up to 6.75 7.1%
Tenure 7 days to 10 years 15 years
Minimum Investment ₹ 100 ₹ 500
Premature withdrawal Allowed Allowed
Regulated by Banks and NBFCs Government of India

Is the PPF amount fixed?

PPF interest rate is revised by the Government every quarter. Thus the rate is fixed for each quarter and changes throughout the year on quarterly basis. When it comes to PPF amount, a minimum of ₹ 500, while a maximum investment of ₹ 1.50 Lakh per year is allowed.

Which gives more interest PPF or FD?

The interest rates offered on PPF and FD are regulated by the Government and the concerned Bank or NBFC, respectively. Currently, the interest offered on PPF is 7.1% while FD interest rate lies between 1.75% to 6.75%.


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