FD vs PPF: Earning money and spending it all or keeping it in banks is not a wise financial decision. In order to have a secure life post-retirement, an individual needs to start investing in the right investment avenues. The early s/he starts, the better return can be expected. As Warren Buffet puts it, “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” Regular investment in small savings schemes is one of the good investment options. The two most popular saving schemes which can be opened conveniently and offer good returns are Public Provident Fund (PPF) and fixed deposits (FDs).
Here are details about Fixed deposits (FDs) and Public Provident Fund (PPF):
Public Provident Funds (PPF):
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.
PPF interest rate: The interest rate is decided by the government on a quarterly basis. Currently, the interest rate is 7.6 per cent. The interest is compounded annually.
Income tax benefits: PPF deposits qualify for deduction from income under Section 80C of the Income Tax Act.
Premature withdrawal: Premature withdrawal is allowed under the PPF account after seven years from the date of commencement. An individual can make premature withdrawal every year.
Loan facility: Subscribers can avail loans against PPF deposits from the third financial year.
Fixed Deposits (FDs):
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.
FD interest rate: Big banks such as SBI, HDFC Bank, PNB, ICICI Bank and Axis Bank currently offer 5.5 per cent to 7.25 per cent interest rate on FD accounts. However, small lenders such as Small Finance Bank, AU Small Finance Bank offer high-interest-rate. Notably, the interest rates vary according to the tenure and period of investments.
Income tax benefit: Investment under a five-year fixed deposit qualifies for income tax benefit under Section 80C of the Income Tax Act.
Premature withdrawal: There are two types of FDs: 1) Regular FDs which offer premature withdrawal facility, 2) FDs with 5-year or 10-year period which offer income tax benefits.