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Which is Better: Fixed Deposit or Public Provident Fund?

    Indians love saving and making investments. And between fixed income investment and market-linked investment, most Indians would any day choose the former option. Fixed Deposits or FD and Public Provident Fund (PPF) are two of the most secure investment options available for risk-averse Indian investors. With this blog, let us figure out which is better: PPF or FD.

     

    What is a Fixed Deposit?

    A Fixed Deposit is an investment instrument that offers assured, risk-free returns. Market fluctuations do not impact FD returns. Undoubtedly, it is a great way to grow your wealth & use it for future goals. At AU Small Finance Bank, we offer different types of FD Accounts, including a Regular Fixed Deposit Account, 5-year Tax Saving Fixed Deposit Account, & Sweep-in Facility, that allow you to earn high FD interest rates.

    Read More: - What is Fixed Deposit

     

    What is Public Provident Fund?

    Public Provident Fund (PPF) is a government-sponsored investment avenue. It is one of the safest long-term investment options popular among Indians to save for retirement. The current interest in PPF is 7.1%, which is regulated by the government. You can open a PPF account at a post office or a designated bank.

     

    FD vs. PPF

    Let us find out which is better: PPF or FD, by understanding the difference between FD and PPF based on the following parameters:

    Parameters

    Fixed Deposit

    PPF

    Issuing Authority

    You can open an FD Account easily with AU Small Finance Bank.

    Open a PPF account at any Indian post office or authorized banks.

    Minimum Deposit Amount

    At AU Small Finance Bank, you can open a Regular FD Account or 5-Year Tax Saving Fixed Deposit Account with a one-time investment of INR 1,000.

    You can open a PPF account by paying INR 100 and must deposit a minimum of INR 500 every year for 15 years.

    Frequency of Deposit

    Single lump sum deposit in a financial year

    Deposit annually or even monthly for a long term of 15 years or more.

    Liquidity

    FDs are liquid in case of emergency. But, withdrawal before the tenure attracts a penalty.

    With PPF, you cannot liquidate your funds for up to 15 years from the start of the fund. However, you can make partial withdrawals after the completion of six years.

    Tenure

    Ranging from 7 days to 10 years.

    Minimum tenure of 15 years .

    Eligibility

    Indian Residents, Non-resident Indians, trusts, firms, HUFs & limited companies.

    All the residents of India can make an investment.

    Rate of Interest

    AU Small Finance Bank offers high interest rate on FDs. Senior citizens get an extra interest rate of up to 0.50% over and above the regular interest rates.

    The current interest rate offered by PPF is 7.1% p.a.

    Loan against deposit

    Pledge FD as collateral to avail a loan in case of a shortage of funds

    You can get a loan against PPF from the 3rd year to the 6th year after opening the PPF account.

    Premature withdrawals

    Withdraw any sum of money you had invested during any point in time.

    Can make limited premature withdrawals from PPF after completion of five years.

    Tax on interest income

    Interest earned on FDs is taxable.

    Under PPF, principal amount, interest earned, and maturity amount are exempted from taxes.

    Tax benefit

    Avail tax deduction up to INR 1,50,000 u/s 80C of the IT Act on the contributions made

    Avail tax exemption of up to INR 1,50,000 under section 80C of the IT Act.
     

    How to calculate FD interest?

    The interest on FD amount can be calculated manually using the formula below:

    A= P(1+r/n) ^n*t

    Where A is maturity amount, P is the principal amount, r is the rate of interest, t is the duration of FD, and n is compounded interest frequency. For quick & accurate results, you can use an AU Small Finance Bank’s online FD interest calculator.

     

    How is interest calculated in PPF?

    The interest in your PPF is calculated monthly, but it is credited together to your account at the end of the financial year. The PPF interest is compounded yearly.

     

    Which is better, PPF or FD?

    Both FDs and PPFs are extremely safe investment options that offer decent returns on maturity. You can choose one instrument between FD vs. PPF as per your investment objective, future goals, and requirements. In comparison to PPF, you can earn better returns by opening a Regular Fixed Deposit Account with AU Small Finance Bank. Along with an FD Account, you can apply for a PPF as well to grow your wealth.