Fixed Deposit Vs PPF: Know Which Works Better For Your Financial Goals

Investors often look for stability and secure returns while choosing investment options. In India, Fixed Deposits (FDs) and Public Provident Fund (PPF) are two popular investment instruments for risk-averse investors. Both schemes are beneficial for long-term wealth creation as they offer assured returns with minimal risks.  

However, both the investment options differ in interest rate, tenure, taxation and other features. So, choosing between the two leave investors in a dilemma.

Let’s take a look at key factors you should consider before choosing between FD and PPF for long-term rewards.

In a fixed deposit, you deposit a certain amount of money for a fixed period of time at a predetermined interest rate. The interest rate is fixed, so you know exactly how much you'll earn when it matures. You can opt for monthly, quarterly or annual interest, or get it at the time of the FD's maturity. Interest rates generally range between 6% and 8% across top banks, and differ depending on tenure.  

A Public Provident Fund is a government-backed long-term savings scheme designed to help investors save for the future, especially for retirement. It has a lock-in period of 15 years, which can be extended in blocks of 5 years each. The interest rate is decided by the government for specific quarters in a financial year. Currently, the PPF interest rate is 7.1% per annum.  

If you are looking for short-to-medium term goals, then opting for an FD could be a suitable choice. These are flexible, offer fixed returns, and can be withdrawn anytime. On the other hand, PPF is meant for long-term goals like retirement or children's education.

An FD is like putting your money in a locked box for a certain period of time and you know exactly how much interest you will earn. However, the interest earned on FDs is taxable. On the other hand, PPF works like a long-term piggy bank—you keep your money for 15 years and it grows with tax-free interest.

While you can choose the amount and tenure for FD investments as per your financial goals, PPF comes with certain limitations. You can only invest up to Rs 1.5 lakh in a PPF account per financial year. It is necessary to deposit at least Rs 500 in a PPF in a financial year to keep your account active. On the other hand, there is no such upper limit for FD investments.

Let’s see how an investment of Rs 1 lakh per year in PPF for 15 years and a lump sum investment of Rs 1 lakh in FD could grow.

Rs 1 lakh per year in PPF:

Interest rate: 7.1% per annum

Tenure: 15 years

Total return: Rs 12,12,139

Invested amount: Rs 15,00,000

Total value: Rs 27,12,139

Rs 1 lakh in FD:

Interest rate: 7% per annum

Tenure: 15 years

Invested amount: Rs 1,00,000

Total return: Rs 1,83,182

Total value: Rs 2,83,182

You can even choose different FD tenures and reinvest the maturity amount as per your financial needs. It is important to note that tax implications may erode your FD gains. While PPF interest earnings and maturity value don’t attract any tax, FD returns are taxable at your applicable slab, depending on the tenure.  

To conclude, both FD and PPF could be suitable for investors looking for secure returns. It is advisable to evaluate the interest rates, taxation and other factors before picking one of the two options.