PPF v/s FD: Which is safer for your retirement?
What's the story
Public Provident Fund (PPF) and Fixed Deposits (FDs) are two popular investment options in India. Both offer the security of capital and guaranteed returns, making them ideal for risk-averse investors. However, they differ in terms of interest rates, lock-in periods, and tax benefits. Here's a look at the key differences between PPF and FDs to help you choose the right investment for your financial goals.
#1
Interest rates comparison
PPF usually offers higher interest rates than FDs. The government sets the PPF interest rate every quarter, which is usually higher than most bank FDs. However, FD rates can differ from bank to bank and depend on the tenure of the deposit. While PPF rates are generally more attractive in the long run, FDs may offer competitive rates for shorter tenures.
#2
Lock-in periods explained
One of the biggest differences between PPF and FD is the lock-in period. PPF has a 15-year lock-in period, which means you cannot withdraw your money before maturity (except under certain conditions). On the other hand, FDs come with flexible tenures ranging from seven days to 10 years or more, depending on the bank. This flexibility makes FDs more appealing for those looking for short-term investments.
#3
Tax benefits analysis
PPF investments also qualify for tax deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh per annum. The interest earned on PPF is also tax-free. However, bank FDs do not offer similar tax benefits; the interest earned is taxable according to the investor's income tax slab. For those looking to save on taxes, PPF is a better option.
#4
Liquidity options available
FDs offer better liquidity options as they allow premature withdrawal after a certain period (usually three months) with some penalty or reduced interest rate. PPF accounts allow partial withdrawals after the completion of six years but have restrictions on the amount that can be withdrawn each year. For investors needing access to funds before maturity without heavy penalties or restrictions, FDs provide greater liquidity flexibility than PPF accounts.