The short answer
PPF is better for long-term savings if you pay tax. Its 7.1% interest is tax-free, so ₹1.5 lakh a year for 15 years grows to about ₹40.68 L, against ₹33.71 L in a 7% FD at the 30% slab. An FD is better for money you may need within 15 years.
How PPF and FDs differ
The Public Provident Fund is a 15-year government savings scheme. You deposit between ₹500 and ₹1,50,000 each financial year, interest is compounded yearly, and the rate is set by the government every quarter. It is 7.1% a year at the time of writing. The interest and the maturity amount are tax-free, which is why PPF is often called EEE (exempt on deposit, interest and withdrawal).
A bank fixed deposit pays a rate fixed for its term, usually compounded quarterly. It is far more flexible: you choose the tenure, and you can break it early for a small penalty. But FD interest is added to your income and taxed at your slab rate every year, whether or not you withdraw it.
The deposit deduction for PPF (formerly Section 80C, up to ₹1.5 lakh a year) is available only in the old tax regime. In the new regime there is no deduction, but the interest and maturity stay tax-free. That tax-free interest is the real comparison point for most people today.
₹1.5 lakh a year for 15 years, side by side
Take ₹1.5 lakh invested at the start of every year for 15 years, ₹22.5 L in all. In PPF it earns 7.1% tax-free. In the FD version, each year’s money goes into a fresh FD at an assumed 7%, rolled over at the same rate until year 15. Tax on FD interest is taken at the slab rate plus 4% cess, which is close to how the interest is taxed each year as it accrues.
| Option | Rate after tax | Value after 15 years | PPF ahead by |
|---|---|---|---|
| PPF (tax-free) | 7.1% | ₹40,68,209 | – |
| FD, no tax payable | 7% | ₹40,98,543 | FD ahead by ₹30,334 |
| FD, 20% slab | 5.54% | ₹35,94,983 | ₹4,73,227 |
| FD, 30% slab | 4.82% | ₹33,70,994 | ₹6,97,216 |
- To match PPF after tax, an FD would need to pay 8.96% at the 20% slab and 10.32% at the 30% slab. Few banks offer that for long tenures.
- With no tax to pay, the FD at 7% ends ₹30.33K ahead, so PPF’s edge comes from the tax exemption.
- In the old regime, the deposit deduction saves up to ₹46,800 a year at the 30% slab, on top of the tax-free interest.
Liquidity and lock-in
The trade-off for PPF’s tax advantage is access. The account runs for 15 full financial years. Before that, you can take a loan against the balance in the early years and make limited partial withdrawals from the seventh financial year, but the amounts are capped by rules on the balance in earlier years. Early closure is allowed only after five years and only for specific reasons such as serious illness or higher education, with a reduction in the interest earned.
An FD can be broken almost any time. Banks usually cut the rate by a small margin for premature withdrawal, and you get the rate applicable to the period actually held. The exception is the five-year tax-saving FD, which cannot be broken early and whose interest is still taxable.
When each one is the better choice
PPF is usually better for long-term money you will not need for 15 years, such as retirement savings or a child’s future, especially if you are in the 20% or 30% slab. The higher your tax rate, the wider the gap. If you are in the old regime, the deposit deduction adds to the benefit.
An FD is usually better for your emergency fund, for goals within five years, and for money you may need at short notice. It also suits people with little or no taxable income, for whom the FD’s taxable interest costs little, and senior citizens who get a higher FD rate from most banks.
Most households need both: an FD or sweep account for liquidity, and PPF for the long-term, tax-free part of their debt savings.
If you have moved to the new regime, the deduction no longer matters, but the comparison barely changes: PPF interest is still tax-free and FD interest is still taxed at your slab. Do not close a PPF account just because you have switched regimes. Keeping it alive with the minimum deposit preserves a tax-free account that is hard to replicate.
On safety, PPF is backed by the government. Bank deposits are insured by the DICGC up to ₹5 lakh per depositor per bank, covering principal and interest together, so very large FD balances are best spread across banks.
Getting the most from PPF
- Deposit by 5 April. Interest is worked out on the lowest balance between the 5th and the end of each month, so an early deposit earns interest for the full year.
- Use the full ₹1.5 lakh if you can. Deposits above the limit earn no interest and give no deduction.
- Keep the account active with at least the minimum deposit every year, or it becomes discontinued and must be revived with a penalty.
- At maturity, decide whether to close it or extend in blocks of five years, with or without fresh deposits.
- Keep FDs for liquidity and short-term goals, and compare them with your slab rate in mind, not just the headline rate.
Frequently asked questions
Is PPF interest taxable in the new tax regime?
No. PPF interest and the maturity amount are tax-free in both regimes. Only the deduction for the deposit is limited to the old regime.
What FD rate equals PPF after tax?
At the current PPF rate of 7.1%, an FD would need to pay about 8.96% at the 20% slab and 10.32% at the 30% slab, including cess, to match it after tax.
Can I withdraw money from PPF before 15 years?
Partly. Partial withdrawals are allowed from the seventh financial year within set limits, loans are available in the early years, and premature closure is allowed after five years for specific reasons such as illness or education.
How often does the PPF interest rate change?
The government reviews small savings rates every quarter. A change applies to the whole PPF balance from that quarter, unlike an FD whose rate is fixed for its term.
Is PPF better than a tax-saving FD?
Usually, for taxpayers. Both qualify for the old regime deduction, but tax-saving FD interest is taxable each year while PPF interest is tax-free. The tax-saving FD has a shorter five-year lock-in.