Fixed Deposits vs Public Provident Fund (PPF): Which is Better for Your Investments?

Choosing the right investment can be challenging. Fixed Deposits (FDs) and the Public Provident Fund (PPF) are two popular options. Both have their pros and cons. Compare the differences between FD vs PPF. This could help you decide which is better for your investments.

What is a Fixed Deposit?

An FD is a savings tool offered by banks and NBFCs where you deposit a lump sum for a fixed period (tenor). You earn a constant interest rate, and the principal amount is locked in, ensuring safety. Interest is paid either at regular intervals or upon maturity. FDs are low-risk and provide assured returns. This makes them popular among conservative investors seeking stability and guaranteed income.

What is a Public Provident Fund?

The PPF is a savings scheme supported by the Government of India. It aims to encourage regular saving. It also offers attractive tax benefits to investors. You can invest a minimum of ₹500 and a maximum of ₹1.5 Lakhs per financial year in a PPF account. The investment is locked in for 15 years, providing a secure long-term savings option. Withdrawals from the PPF account are allowed after the seventh financial year. This offers some liquidity while still promoting disciplined saving for future financial goals.

Comparison of Fixed Deposits and Public Provident Fund


Criteria

Fixed Deposit 

Public Provident Fund 

Interest Rates

Varies between banks and NBFCs. Senior citizens often get higher rates.

Set by the government and revised quarterly. As of July 2024, it stands at 7.1% p.a.

Risk and Safety

Considered safe, backed by banks and NBFCs. FDs provided by banks are insured up to ₹5 Lakhs by the Deposit Insurance and Credit Guarantee Corporation.

Backed by the Government of India. No risk of default.

Tenor

Ranges from 7 days to 10 years; 5-year lock-in period for tax-saver FDs.

Fixed tenor of 15 years. Extendable in blocks of 5 years after maturity.

Tax Benefits

Tax-saving FDs offer deductions of up to ₹1.5 Lakhs each financial year under Section 80C of the Income Tax Act, 1961. Interest earned is taxable.

Eligible for tax deductions under Section 80C. Interest earned and maturity amount are tax-free.

Liquidity

Better liquidity. Can break before maturity but may incur a penalty.

Limited liquidity. Loans available from the third year.

Returns

Fixed and known at the time of investment. Not affected by market fluctuations.

Rates can change quarterly as decided by the government. Historically competitive with inflation.

Suitability

Suitable for short-term to long-term goals. Could be ideal for risk-averse investors looking for assured returns.

Suitable for long-term goals like retirement or children’s education. Could be ideal for those seeking tax-free, secure returns.


Both FDs and PPF have their advantages. If you need flexibility and short-term savings, fixed deposits may be a good choice. They offer higher liquidity and a range of tenors. For a long-term, secure investment with tax benefits, you could choose the public provident fund. It offers higher safety, tax-free returns, and is backed by the government.

Read also :- Comparing Choices: Debt Funds vs. Fixed Deposits
Location: India

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