PPF vs FD: Check out the latest interest rates of Public Provident Fund and Post Office Fixed Deposit here

If you are wondering about investing in a Fixed Deposit (FD) and Public Provident Fund (PPF), you must first understand that these options give you fixed returns but have a lock-in period. They help you build a retirement corpus. To invest, you can open an FD or PPF account with a post office or a bank.

You can get a guaranteed return by investing in PPF. At present, you can earn a 7.1 per cent interest. By investing in this scheme, you get the benefit of triple tax exemptions—exempt-exempt-exempt (EEE) status—which means tax benefits on investment, accrual, and withdrawal of your money.

The post office FDs also provide guaranteed returns. Here you have to make the deposits for a fixed period.

A one-year term deposit fetches 6.8 per cent, and the two to three years FDs fetch 7 per cent. However, interest rates on term deposits for five years fetch 7.5 per cent returns on your deposits.

1 year Post Office Time Deposit - 6.9%

2 years Post Office Time Deposit - 7%

3 years Post Office Time Deposit - 7%

5 years Post Office Time Deposit - 7.5%

Naveen Kukreja, Co-Founder and CEO of Paisabazaar, says: “When comparing two saving schemes, 5-year Post Office FDs offer a higher interest rate of up to a maximum of 7.5% with a shorter tenure, whereas PPF (Public Provident Fund) currently provides an interest rate of 7.1% and has a lock-in period of 15 years. Note that interest rates are applicable annually.”

Post Office Time Deposits (FDs) offer relatively lower interest rates for tenure up to 3 years than what is provided against PPF. However, smaller tenure ensures higher liquidity, but there is no tax benefit on it as with PPF.

Post Office FD investments are flexible. One can start with as little with an amount of Rs 200 and with no maximum investment limit. However, you need a minimum investment of Rs 500 to open a PPF account, and the maximum investment limit is Rs 1.5 lakh per annum.

Kukreja said, “The premature withdrawals facilities of Post Office FD are easier whereas, in the case of PPF, you can make premature withdrawals only after completing 5 financial years of account opening. There are numerous additional conditions in availing a loan against PPF.”

However, since PPF comes under the EEE category, it offers a tax deduction on investments up to Rs 1.5 lakh in a financial year, and the interest earned along with the accumulated amount does not have any tax liability either. The 5-year Time Deposit qualifies for tax deduction under Section 80C of the Income Tax Act, but the interest earned on the invested amount is taxable.

“If a shorter investment period suits your life goal, select Post Office FD. If your life goal allows you to invest longer, you should invest in PPF. The tax-free PPF maturity amount and interest earned can also help you benefit exponentially from the interest earned with the power of compounding,” said Kukreja.