Tax & Savings

PPF vs Fixed Deposit

No Sign-Up. No Paywall.

FREE TO USENO LOGIN REQUIREDUPDATED FY 2026–27

Both are safe. Only one is tax free at every stage, and only one locks your money up for fifteen years.

By Aditya GuptaAccounting and Finance EducatorLast reviewed 22 August 2026Source: National Savings Institute

What Each One Is

The Public Provident Fund is a government savings scheme with a fifteen-year term, a rate reset quarterly by the government, and a ₹1,50,000 annual contribution ceiling. Contribution, interest and maturity are all exempt from tax, the arrangement usually written as EEE.

A fixed deposit is a bank contract. You choose the term from days to ten years, the rate is fixed at the outset for that term, and the interest is taxable every year at your slab rate whether or not you withdraw it.

Both are about as safe as rupee assets get. PPF is a sovereign obligation. Bank deposits are insured by DICGC up to ₹5,00,000 per depositor per bank, with the balance depending on the bank.

Why the Headline Rates Mislead

PPF at 7.1% and an FD at 7% look like the same product with a rounding difference. They are not, because only one of them is taxed.

FD interest is added to your income and taxed at your slab every year, and the tax is due whether the deposit is cumulative or not. In the 30% bracket a 7% FD compounds at 4.9%. Over fifteen years that gap does not add up, it compounds up.

Change the slab field in the calculator and watch the FD column move. In the 5% bracket the two are close; in the 30% bracket they are not the same asset class.

Key Differences

Factor	PPF	Fixed Deposit
Tax on interest	None, at any stage	Taxed yearly at your slab
TDS	None	10% above ₹40,000 of interest a year, ₹50,000 for senior citizens
Term	15 years, extendable in blocks of 5	7 days to 10 years, your choice
Annual limit	₹1,50,000 across all your PPF accounts	None
Liquidity	Partial withdrawal from year 7; loan from year 3	Premature closure any time, usually with a rate penalty
Rate certainty	Reset quarterly by the government	Fixed for the chosen term at the outset
80C deduction	Yes, within the ₹1,50,000 ceiling, old regime	Only a 5-year tax-saver FD, and its interest is still taxable
Safety	Sovereign	DICGC insured to ₹5,00,000 per bank

Where the FD Genuinely Wins

The FD is not the poor relation. It wins on the dimensions PPF cannot serve.

It has no ceiling, so it takes ₹40 lakh as easily as ₹40,000. It has no lock-in that matters, so money needed in two years can sit in it. It lets you fix a rate for a chosen term, which is valuable when rates are falling. And in the lowest slabs, or for someone whose total income is below the taxable threshold, the tax disadvantage largely disappears.

Senior citizens get a further edge: a rate premium of roughly half a per cent at most banks, and a ₹50,000 deduction on deposit interest under Section 80TTB in the old regime.

When Each Makes Sense

Choose PPF

The money is genuinely long term and you will not need it inside seven years
You are in the 20% or 30% slab, where the tax exemption is worth the most
You want a sovereign-backed debt allocation inside a long-term portfolio
You are on the old regime and can also use the 80C deduction

Choose the FD

The money may be needed inside a few years
The amount is larger than the ₹1,50,000 annual PPF ceiling allows
Your taxable income is low or nil, so the interest is barely taxed
You want to lock a specific rate for a specific horizon

For most households the answer is both, in different roles: PPF as the long-term tax-free debt allocation, an FD or liquid fund as the near-term money.

The Real Return Matters More Than Either

At 7.1% tax free against roughly 5 to 6% inflation, PPF preserves purchasing power and adds a little. At 4.9% after tax, an FD in the 30% bracket does not keep pace with 6% inflation at all: the balance grows and its buying power shrinks.

That is the more important comparison, and it is why neither should be the whole portfolio. Run both after-tax rates through the inflation-adjusted return converter to see what each is doing in real terms.

How to Decide

Ask when you need the money. Inside seven years, PPF is largely unavailable to you regardless of its merits, and the FD wins by default.

If it is long-term money, ask what slab you are in. The higher the slab, the more decisively PPF wins, and the calculator above quantifies it on your own numbers.

Then ask how much. Above ₹1,50,000 a year the ceiling forces a split, and the sensible structure is PPF to the cap and the balance elsewhere.

Frequently Asked Questions

For long-term money in a higher slab, usually yes, because PPF interest is exempt while FD interest is taxed every year at your slab. For money needed within a few years, or amounts above the ₹1,50,000 annual ceiling, the FD is the practical choice.

Partially. A partial withdrawal is allowed from the seventh financial year, subject to a limit based on the earlier balance, and a loan is available between years three and six. Premature closure is permitted only in defined situations such as serious illness or higher education, and carries a rate penalty.

Yes. Interest on a cumulative FD accrues and is taxable each year, and banks deduct TDS at 10% once interest crosses ₹40,000 a year, ₹50,000 for senior citizens. TDS is not the final tax, only a payment on account.

Per person, across every PPF account you hold, including one you operate for a minor. Depositing more does not earn interest on the excess.

They share the 80C deduction under the old regime but not the exemption on interest, which remains fully taxable. That is the whole difference, and over a long horizon it is a large one.

You can withdraw the whole balance tax free, or extend in blocks of five years with or without further contributions. An extension without contribution continues to earn the prevailing rate and allows one withdrawal a year.

Sources and Method

The calculator compounds an annual contribution for the number of years you enter. The PPF column compounds at the full rate. The FD column compounds at the rate after your slab, which is how a taxable cumulative deposit actually behaves. Rates are inputs, not predictions: PPF is reset quarterly by the government and FD rates vary by bank and term.

PPF rules, ceiling and withdrawal terms — Public Provident Fund Scheme, 2019, administered by the National Savings Institute.
TDS on deposit interest — Income Tax Act, Section 194A. Senior citizen deduction — Section 80TTB.
Deposit insurance — DICGC cover of ₹5,00,000 per depositor per bank.

Last reviewed 22 August 2026. Rates change; confirm the current PPF rate and your bank’s FD card rate before acting. General information, not investment advice.