Tax Saving FD Vs PPF – Which Is A Better Investment Option For You?


Whether you plan for a dream holiday, children’s education, marriage, or retirement, savings are the most crucial thing. Most of us strive to invest under our incomes, save to invest wisely, and grow our savings. Fortunately, we have a plethora of viable alternative investments to choose from.

This blog will look at two popular investment tools: PPF Schemes and Fixed Deposits. We then compare the characteristics and advantages of PPF vs FD and decide which is the better option.

Fixed Deposit (FD)

Fixed Deposits are low-risk investment opportunities banks and non-bank financial companies offer. They are an excellent tool for increasing your savings. You can deposit an amount based on your financial capacity and choose a tenure based on your needs. Your deposit will begin earning a predetermined rate of interest. This interest rate is unaffected by market fluctuations, and the money on your deposit is guaranteed.

PPF (Public Provident Fund)

For the uninitiated, a Public Provident Fund is a government-backed investment-cumulative-tax-saving instrument. PPF is entirely secure because the government assures it. You can invest in a PPF through the Indian Postal Service or a designated bank.

Advantages of FD

  • Flexible tenure: Depending on your investment objectives, you can choose between short-term and long-term Fixed Deposits. The tenure can last anywhere from 7 days to 20 years.
  • Guaranteed returns: FD interest rates are not affected by market conditions. It stays constant at the rate at which you booked the FD. This ensures that returns on maturity are guaranteed.
  • Higher returns: Interest on cumulative FDs is compounded monthly, quarterly, or semi-annually. This ensures higher returns on the principal sum.
  • Tax Saving: Tax-saving Fixed Deposit can help you reduce your taxable income. Section 80C of the IT 1961. Act allows you to claim tax exemption of up to 1,50,000. Furthermore, it is classified as Exempt-Tax-Exempt.

Advantages of PPF

  • Tenure: PPFs have a minimum tenure of 15 years. It can be prolonged in 5-year increments if desired.
  • Investment limit: The PPF minimum investment amount is Rs. 500. In a fiscal year, the maximum amount invested in a PPF is 1.5 lakhs.
  • Tax benefits: PPF investments are eligible for a tax deduction of up to 1.5 lakhs per year. It includes all financial assets under Section 80C of the Income Tax Act of 1961.
  • Regularity: Individuals must deposit at least once a year into their PPF account for the next 15 years.
  • Flexible: Individuals can deposit funds into their PPF accounts using cash, check, online fund transfer, or demand draft.

Let us compare the availability of PPF and FD loans:

  • ODFD/Credit Card against Fixed Deposit: Users can obtain a ODFD/Credit Card Fixed Deposit at any time. Top banks provide ranging from 85% to 90% of the limited initial deposit. If the borrower doesn’t repay the credit, the bank can recover it using the FD amount as collateral security.
  • Loan against PPF: A loan against the Public Provident Fund is only available after the third fiscal year of investment. It can go up to the sixth year after starting the PPF account. The loan amount is limited to 25% of the balance available in the Pension account. The loan must be repaid in 36 monthly instalments within 36 months of being granted. You can take out a second mortgage if your first loan is fully settled.  

You may also read –  PPF vs FD

What Should You Choose: FD or PPF?

For risk-averse investors, both regular FD and PPF are viable options. However, people who want to save taxes while also making investments for the future prefer PPF. The safety it provides is unparalleled due to the government’s backing. Furthermore, the interest you earn is tax-free adds to its allure. However, it has an exceptionally long lock-in period with limited withdrawal options beginning in the seventh year.

On the other hand, FDs are more liquid and give you the option of determining tenure. In addition, the income Tax Savings FD have a 5-year lock-in period, much shorter than the PPF. However, FDs are comparatively riskier, and the interest you earn is taxable.

Keeping all this in mind, PPF can be a good option if you accept a 15-year lock-in.

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