PPF vs FD — Which Is Better?
PPF pays 7.1% completely tax-free with a 15-year lock-in; FDs pay about 7% taxable with full flexibility. Here is the honest comparison — returns, tax, risk, and liquidity — with engine-computed numbers.
Quick Recommendation
Quick Recommendation
For long-term savings in the 20–30% tax slab, PPF beats every bank FD: its 7.1% tax-free return equals ~10.1% pre-tax, which no FD pays. Choose an FD only for money you need within about 5 years, or after you've filled the ₹1.5 lakh yearly PPF limit.
PPF vs FD — Full Comparison
PPF vs FD at a Glance
| Feature | PPF | Fixed Deposit |
|---|---|---|
| Interest rate | 7.1% (government-set, quarterly review) | 6.5%–7.5% (bank-set) |
| Tax on interest | Nil (EEE) | Slab rate + TDS above ₹40,000/yr |
| Section 80C benefit | Yes, up to ₹1.5L/yr | Only 5-year tax-saver FDs |
| Lock-in | 15 years (partial withdrawal from year 7) | 7 days to 10 years, you choose |
| Investment style | ₹500–₹1.5L per year | Lump sum, any amount |
| Safety | Sovereign guarantee | DICGC insured up to ₹5L per bank |
Returns: the Tax Difference Is the Whole Story
On paper the rates look similar — 7.1% for PPF against roughly 7% for a good bank FD. After tax they are not close. PPF interest is completely tax-free. FD interest is added to your income and taxed at your slab: a 30%-bracket investor keeps only ~4.9% of a 7% FD. For PPF’s 7.1% tax-free return, that investor would need an FD paying about 10.1% — which no bank offers.
Worked Example (engine-computed)
| PPF: ₹1,50,000/yr × 15 yrs @ 7.1% | FD: ₹1,50,000 once @ 7% for 10 yrs | |
|---|---|---|
| Amount invested | ₹22,50,000 | ₹1,50,000 |
| Maturity (pre-tax) | ₹40,68,209 | ₹3,00,240 |
| Interest earned | ₹18,18,209 tax-free | ₹1,50,240 taxable |
| After 30% slab tax | ₹40,68,209 (unchanged) | ≈ ₹2,55,168 |
Run your own numbers in the PPF Calculator and FD Calculator, and check your slab with the Income Tax Calculator.
Risk Comparison
Both are as safe as Indian savings products get, but the guarantees differ. PPF carries a direct sovereign guarantee — the Government of India owes you the money. Bank FDs are insured by DICGC only up to ₹5 lakh per bank per depositor (principal + interest). For larger FD amounts, spread deposits across banks. Neither product has market risk; the real risk in both is inflation — at ~5% inflation, a post-tax FD return of 4.9% loses purchasing power.
Liquidity Comparison
FD wins decisively. An FD can be broken any time (typically a 0.5–1% interest penalty), and tenures start at 7 days. PPF locks your money for 15 years: loans are possible in years 3–6, partial withdrawals only from year 7 (max 50% of the 4-years-ago balance), and premature closure is allowed only for specific emergencies after year 5, with a 1% rate penalty. Money you may need soon does not belong in PPF.
Which Is Best for Whom?
- Choose PPF if you are building a long-term (15+ year) corpus, pay tax in the 20–30% slab, use the Old Regime and want the 80C deduction, or want a sovereign-guaranteed, fully tax-free retirement floor.
- Choose FD if you need the money within 1–5 years, are parking an emergency fund, are a senior citizen using the extra 0.25–0.5% rate, or have exhausted the ₹1.5L yearly PPF ceiling.
- Most savers should hold both: FD for near-term liquidity, PPF maxed out for the long term. They solve different problems.
Common Mistakes
- Comparing pre-tax rates. 7% FD vs 7.1% PPF is not a 0.1% gap — after 30% tax it is roughly a 2.2 percentage-point gap, compounding for 15 years.
- Putting emergency money in PPF. The 15-year lock-in is real; year-7 withdrawals are capped and conditional.
- Depositing PPF after April 5. Deposit before April 5 to earn the full year’s interest — a late lump sum quietly costs one year of compounding on that deposit.
- Exceeding ₹1.5L in PPF. Excess deposits earn no interest and no deduction.
- Ignoring FD TDS. Banks deduct 10% TDS above ₹40,000 interest per year — file Form 15G/15H if your income is below the taxable limit.
Accuracy & Sources
Last reviewed: July 2026. All calculations run in your browser. No data is sent to any server.
Frequently Asked Questions
For long-term goals and taxpayers in the 20–30% slab, yes: PPF's 7.1% is fully tax-free, equivalent to a 10.1% pre-tax FD rate for a 30%-bracket investor — no bank pays that. FD is better for short-term goals and emergency funds because PPF locks money for 15 years. Most savers benefit from holding both for different purposes.
No. ₹1,50,000 per financial year is the statutory ceiling across all your PPF accounts, and excess deposits earn no interest and no 80C deduction. If you have more to invest in guaranteed instruments, the overflow typically goes to FDs, RDs, or debt funds — which is exactly when the FD side of this comparison becomes relevant.
Yes — FD interest is taxable annually on an accrual basis at your slab rate, even for cumulative FDs where you receive the money only at maturity. Banks also deduct 10% TDS once your interest across deposits at one bank crosses ₹40,000 a year (₹50,000 for senior citizens). PPF interest, by contrast, is never taxed.
PPF balances are a sovereign liability — bank failure does not affect them. FDs are protected by DICGC insurance only up to ₹5 lakh per depositor per bank (principal plus interest combined). For FD amounts above ₹5 lakh, splitting deposits across multiple banks preserves full insurance cover.
Often, yes. Senior citizens get 0.25–0.5% extra on bank FDs (roughly 7.25–7.75% at major banks), a ₹50,000 TDS-free interest allowance, and — in the Old Regime — a ₹3 lakh basic exemption. A retiree in a low tax bracket may keep most FD interest anyway, which narrows PPF's after-tax advantage considerably.