Bank FD vs PPF: Which one is better for you to get better return?

By: |
New Delhi | Updated: May 14, 2018 5:49:12 PM

Bank FD vs PPF: People spend a majority of their time in earning a livelihood and pondering over the thought as to how can they save their hard-earned money.

Bank FD vs PPF: Which one is better (Reuters)

Bank FD vs PPF: People spend a majority of their time in earning a livelihood and pondering over the thought as to how can they save their hard-earned money. Many times, due to lack of knowledge, people lose their money by investing at wrong places. The Government of India has launched many investment and saving schemes to help people save money for the future. Out of these, bank fixed deposits (FD) and Public Provident Fund (PPF) are among the most popular ones. Each investment plan attracts investors with a slew of benefits and features.

Fixed Deposits and Public Provident Fund can be considered as two sides of the same coin, offering multiple benefits while retaining their individual characteristics. However, the question arises: Which option is better — Fixed Deposit or PPF?

What are PPF and FD?

Public Provident Fund: Public Provident Fund (PPF) is a 15-year scheme, and the same can be extended within one year of maturity for indefinitely in multiples of five years. Interestingly, a subscriber is allowed to transfer a PPF account from a post office to a bank and vice versa.

Bank Fixed Deposits: FDs are investment instruments offered by banks and non-banking financial companies. People can deposit money for a higher rate of interest than savings accounts. Subscribers can deposit a lump sum of money in fixed deposits for a specific period, ranging from seven days to ten years.

Here are some points which might help you decide:

1- Maturity or lock-in period: The lock in period refers to the time duration after which an account matures. Under the PPF scheme, an account reaches maturity after 15 years, while FD can mature ranging from seven days to 10 years.

2- Interest Rates: The government is responsible for fixing the return rates on PPF and also holds the power to change is at any point of time. Currently, the interest rates on PPF stand at 7.6 per cent. The interest rates on Fixed Deposits are set by individual financial organisations. Most banks offer interest rates up to 7.25 per cent.

3- Premature Withdrawals: Premature withdrawal facility is available for both PPF and FD. Under the PPF plan, a subscriber can withdraw money but after five years. Also, only a limited amount can be withdrawn from the account. As for FD’s, most banks allow premature withdrawal but can levy a certain fine on such withdrawals.

4- Tax deduction: Individuals can claim a tax deduction on certain investments under Section 80C of the Income Tax Act, for both Public Provident Fund and Tax-Saving Fixed Deposits eligible for such deductions. The current maximum deduction available for both these investments stands at Rs 150,000 (One lakh fifty thousand) per annum, according to a Bankbazaar report.

5- Investment Amount: The maximum amount an individual can invest in a PPF amount is Rs 1,50,000 per annum. However, there is no such limit in case of FDs.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition