A Detailed Comparison of FD and PPF

Fixed Deposits

Fixed deposit is a unique financial tool offered by banks, post office and non-banking financial companies they tend to offer a higher interest rate than the saving account but as the name suggests the deposits are fixed for a certain time period when subjected to this high interest rate and thus also earning the name term deposits, the rate of interest offered on these deposits is 8-9%.

Public Provident Fund (PPF)

The Public Provident Fund is a unique instrument which besides being a savings scheme is also a great tax benefit plan offered through the post office by the National Savings institute. Moreover the scheme is backed by the Government Of India thus promising stable and safe returns as the rate of interest is fixed by the government at the end of every financial quarter.

Difference Between PPF And FD

The key differences are as follows:

1. Investment Tenure

PPF are designed to encourage long-term saving for a specific goal and thus to encourage that behaviour there exists a disciplined lock in period of 15 years which can be extended by adding 5 more years whereas tax saving FDs have a 5-year lock in period and tenure can go up to 20 years of investing.

2. Premature Withdrawals 

In a PPF account the investor is restricted and cannot withdraw funds before the completion of 7 years of investments whereas Fixed deposits allow premature withdrawals meaning that one would have to suffer the loss of interest moving forward.

3. Interest Payment

In PPF funds the interest is fixed by government at the end of every financial quarter and is added to their funds on 31st march every year whereas on fixed deposit there is no such pattern of predicting the change in investment and investor has the option to pick whether the interest is to be credited regularly or as a lump sum at the time of maturity.

4. Loan Facility

PPF accounts are meant for long term savings so to promote that  there exists a disciplined approach which specifies that a loan can only be taken out after the completion of the 3rd financial year of investment whereas in Fixed Deposits one can take a loan against their deposits at any time they need to do so.

5. Tax Benefits

PPF funds along with being a great long term savings scheme are an equally valuable tax benefitting plan as the deposits made to the PPF account qualify for tax deductions under section 80 c of the Indian Tax act moreover the interests earned and the returns are also exempted from income tax whereas fixed deposits offer an tax exemption on returns up to only 1.5 lakh rupees.

Conclusion

A financially responsible adult would always look to save his money and plan for the long term and these plan enable him to do exactly that both these funds are unique in their own way as PPF fund is more rigid as it targets long term saving and is more safe and stable as it is backed by the government whereas FDs are more flexible with their lock in period and loan availability so which one is better is not the question to be answered rather that which one is suitable is to be answered only by determining what the investor is looking to do with their savings  and the term they want to invest it for.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.