FD Vs PPF: How To Choose The Best Between Them?

When it comes to risk-free investment, there are not a lot of options available that give outstanding returns. This is why it’s understandable why you may want help when comparing the features of FD vs PPF. These two lucrative options are not only secure but also suitable for long-term investment. 

Read on to get acquainted with their features and benefits to make a better selection between FD vs PPF. 

Guide to Public Provident Fund 

This savings scheme was established by the Ministry of Finance in 1968 and is supported by the government. It enables you to put your money in a non-market-dependent instrument for the long run to ensure your returns. Here are some of its features: 

• There is a 15-year lock-in period, and early withdrawals are allowed on meeting certain conditions
• The interest rates for this plan change every quarter 
• Right now, the rate is consistent at 7.1% annually for the third quarter of the 2024-25 
• It’s an optimal choice to grow your corpus for retirement or any other long-term goal

Guide to Fixed Deposit

Also called term deposit, this is a customisable investment option suitable for those with low-risk appetites. This is because its returns are not influenced by market fluctuations. Take note of its features for better understanding: 

• You need to invest a lump sum amount, which should be equal to or more than the minimum requirement of the financial institution
• You stay invested for a fixed tenure, between 7 days and 10 years, depending on your preference
• Banks, housing finance companies and non-banking financial companies offer variable interest rates for different tenures and principals 
• The rates beat the returns offered by savings accounts
• Apart from a few exceptions, you can withdraw money anytime, but you may need to pay a penalty, which decreases your total returns

Difference Between PPF and FD

Now that you have a basic understanding of these two savings options, here are some ways to compare FD vs PPF and make a decision:

Parameter	Public Provident Fund	Fixed Deposit
Eligibility Criteria	Anyone over the age of 18 years can open an account for self or a minor	Anyone over the age of 18 years can open an account, and guardians can open an account on a minor’s behalf
Interest Rate	The interest rate is set by the government and is subject to period revision; the current rate is 7.1% p.a.	Varies for all banks and financial companies and currently ranges between 2.50% to 9.00% p.a. with 0.25% to 0.75% additional rates for senior citizens
Liquidity	Low accessibility as you cannot withdraw your funds for at least 5 years and only partial withdraw after 5 years	Most financial institutions allow you to make premature withdrawals with a penalty of 0.5% to 1% or more on your total interest
Lock-in period	It comes with a lock-in period of 15 years	Tax-saving FDs have a lock-in period of 5 years
Maximum Tenure	You must stay invested for a 15-years to avoid  premature closure penalties	You can choose any tenure between 7 days to 10 years, depending on your investment goals
Minimum Investment	You can start with a minimum investment of ₹500	The minimum deposit amount varies and usually starts from ₹1,000
Maximum Investment	You can invest up to ₹1.5 lakh a year	There is no set maximum limit; it depends on the financial institution and may go up to crores
Taxation	It falls under the exempt-exempt-exempt (EEE) category, so you can enjoy tax benefits on investment as well as return and maturity amount	The interest attracts tax as per your slab as well as TDS of 10% if it’s over ₹40,000 for regular citizens and ₹50,000 for senior citizens, but you can claim a deduction on investments up to ₹1.5 lakh under Section 80C of the IT Act

Which is Better: PPF or FD

Although both options are dependable and safe, it is important to select the one that aligns with your investment goals and capability. 

• PPF is the right option if you can stay invested for a longer tenure or aim to grow funds for a long-term goal
• Fixed deposit is a better choice if you want flexibility, shorter tenure and higher liquidity

To plan for either of these, start by analysing your needs and compiling a list of the objectives you want to meet with your investment. Once done, you can compare FD vs PPF in terms of benefits, rules and restrictions, returns and other factors to choose the better option for yourself. 

FAQs on FD vs PPF

How is the maturity period different for FD and PPF?

For a fixed deposit, you can choose a tenure between 7 days and 10 years, depending on your financial goals. But for PPF, the maturity period is fixed at 15 years. You can reinvest for an added term of 5 years. 

What are the withdrawal rules for FD compared to PPF?

Most issuers allow you to make premature withdrawals before the tenure ends. However, you must pay an interest penalty which reduces your payout. With PPF, you cannot make any withdrawal before 5 years. 

What happens to FD and PPF upon the account holder’s death?

In both options, the nominee can claim the account after maturity.