Preparing for your future might seem tough (especially when you're young and managing expenses). But if you don't start saving now, you may need to work harder later in life and possibly delay your retirement. Luckily, there are various savings options available for all age groups.
PPF and FD are two investment options worth considering if you're looking for a secure retirement. These investment options can help you build a solid savings foundation. Each has its advantages and drawbacks. Thus, it's important to understand the differences between FD and PPF before deciding. Keep reading this discussion of PPF vs FD to understand what investment type you should choose.
An Overview of the PPF Account
PPF, or Public Provident Fund, is a government-backed long-term savings plan with fixed-income returns. The current PPF interest rate is 7.1% p.a. (Quarter 2 of FY 2024-25). As one of the tax-saving options under Section 80C of the old Income Tax Act, PPF is a solid choice for those looking to save for the future. The PPF account has a 15-year term and can't be closed early unless specific conditions are met. However, after five years, you can withdraw a portion of your funds—up to 50% of your balance from the previous fiscal year.
- The Public Provident Fund is a government-sponsored long-term savings plan.
- You can deposit up to ₹1,50,000 annually in PPF and enjoy tax benefits under Section 80C.
- The total investment, interest earned, and maturity amount are all tax-free.
- PPF accounts have a 15-year lock-in period, but partial withdrawals are allowed after a certain number of years.
- You can open a PPF account at post offices, nationalised banks, and private banks.
- NRIs cannot open PPF accounts. However, if an NRI had a PPF account while they were a Resident Indian, investments can be made in the same account and held until maturity, under non-repatriation terms. Once the account matures, no fresh contribution to the existing account can be made.
An Introduction to FDs – Key Features
Fixed deposits are the most straightforward financial investment options. They offer higher interest rates than regular savings accounts. Interest accumulates on the deposited amount over a set period and is determined by the FD provider. Many financial institutions even provide additional benefits, like higher interest rates on FDs for senior citizens and women depositors.
FD returns are more stable compared to other market-linked investment options, allowing you the confidence to plan your short and long-term finances. These are some of the features that make FDs such a compelling and reliable choice for investors from every walk of life.
PPF vs FD: Calculation of Interests
The interest, earned under PPF, for each month is calculated based on the lowest balance maintained in the PPF account between the end of the 5th day and the last day of that month.
Fixed deposits, on the other hand, calculate interest using either compound interest or simple interest methods. You can use a PPF and FD calculator to estimate your maturity amount.
These free and easy-to-use tools can help you choose a suitable option for you based on different FD or PPF rates and terms. All you need to do is enter basic details like FD interest rates or PPF rates. You also need to enter the deposit amount and term; the calculator will give you an estimate.
Remember, the amount calculated by these tools is just a guideline and not an exact figure.
Comparison of FD and PPF
Here's a table highlighting the key differences between Fixed Deposits and Public Provident Funds that can help you make an informed investment decision based on your financial goals:
| Feature | Public Provident Fund (PPF) | Fixed Deposit (FD) |
| Interest Rate | Set by the government; provides lower rates than FD | Varies by bank and NBFCs, generally higher than savings accounts |
| Deposit Frequency | Deposits must be made at least once a year | Can be made in lump sum or instalments as per FD scheme |
| PPF vs FD Interest Rates | Compounded annually | Follows the principle of compound interest or simple interest |
| Lock-In Period | 15 years | No definite lock-in; offers flexible tenures–from a few months to several years |
| Early Withdrawal | Allowed partially after 5 years, subject to conditions | Allowed with penalties, but terms vary |
| Eligibility for NRIs | NRIs cannot open new accounts, but existing accounts can continue until maturity, post which contributions cannot be made to the account | NRIs can invest, depending on the financial institution's policies |
Wrapping up
In a nutshell, it's essential to understand the benefits and drawbacks of each investment avenue before you decide between FD and PPF. Fixed Deposits might suit you if you invest for a few months to a few years. However, PPF could be a better fit for you if you're thinking about a long-term investment, saving for retirement or even saving taxes.
Shriram Unnati Fixed Deposit offers competitive interest rates with compelling features, helping you plan your finances in a structured way while also building your corpus. Head over to our website to open an FD with us today!
