PPF or FD: Key differences, which is safer, and more
What's the story
Public Provident Fund (PPF) and Fixed Deposits (FDs) are two of the most popular investment options in India. Both offer safety and guaranteed returns, but they also differ in terms of liquidity, return rates, and investment duration. Knowing these differences can help you make an informed choice based on your financial goals. Here's a look at the key differences between PPF and FDs.
#1
Understanding PPF: Long-term investment
PPF is a long-term savings scheme backed by the government, with a minimum tenure of 15 years. It offers attractive interest rates, which are usually higher than most bank FDs. The current interest rate for PPF stands at 7.1% per annum. However, the amount deposited in PPF accounts cannot be withdrawn before maturity, except under certain conditions.
#2
FD: Short to medium-term option
FDs are offered by banks and financial institutions for short to medium-term investments. The tenure of FDs can range from seven days to 10 years, providing flexibility according to one's financial needs. The interest rates for FDs vary depending on the bank and tenure but usually range between 5% to 7% per annum. Unlike PPF, you can prematurely withdraw from an FD with penalties.
#3
Liquidity differences between PPF and FD
Liquidity is an important factor when choosing between PPF and FD. While FDs allow partial withdrawals or premature closure (with penalties), PPF has strict rules regarding withdrawals before maturity. Account holders can only withdraw a portion of their balance after the completion of the sixth year, making it less liquid than FDs.
#4
Tax implications: PPF vs FD
Both PPF contributions (up to ₹1.5 lakh) and interest earned on it are tax-exempt under Section 80C of the Income Tax Act. However, interest earned on bank FDs is taxable as per the individual's income tax slab rate, unless you are a senior citizen who enjoys higher interest rates on certain deposits.