PPF vs FD: Where will your money be safer and give better returns? Know the whole truth

Whenever it comes to safe investments, two names first come to mind – Public Provident Fund (PPF) and Fixed Deposit (FD). Both options are very popular because there is no market risk and your money remains safe. But often people are in a dilemma as to where they should invest their money?

Let us understand in simple language what is the difference between PPF and FD and which option is best for you.

Public Provident Fund (PPF): The long haul

If you want to invest for the long term, such as planning for retirement or saving for your children’s education, then PPF is a great option for you.

• Security Guarantee: This is a government scheme, so your money remains 100% safe.
• Tax Free Returns: Its biggest feature is that you do not have to pay any tax on the interest received in it. It comes under EEE (Exempt-Exempt-Exempt) category, which means tax exemption is available on investment, interest and maturity.
• Excellent interest rate: PPF usually offers 7.1% annual interest, which is higher than the FD of most banks.
• Lock-in period: There is a lock-in period of 15 years, that is, you cannot withdraw money before 15 years (except in some special circumstances).
• How much can you invest: You can deposit a minimum of Rs 500 and a maximum of Rs 1.5 lakh in a year.

Fixed Deposit (FD): Your trusted short-term companion

If you have to invest money for a few months or a few years and you can withdraw it when needed, then FD is right for you.

• Flexibility: You can get an FD for a tenure ranging from 7 days to 10 years.
• Instant cash: FD can be redeemed prematurely if required, although the bank charges a small penalty for doing so.
• Tax on interest: The interest received on FD is added to your annual income and is taxed as per your income tax slab.
• Interest Rates: FD interest rates vary depending on the bank and the tenure chosen, usually ranging between 6% to 7.5%.

So what to choose: PPF or FD?

This decision depends entirely on your goals:

• Choose PPF if…
  • You want to invest for long-term goals like retirement or children’s future.
  • You want to save tax and avail tax-free returns.
  • You don’t want to touch your money for 15 years.
• Choose FD if…
  • You want to keep the money for a short period of time like 1 to 5 years.
  • You think you may need money at any time (want liquidity).
  • You want a fixed return without worrying about tax.

conclusion

To summarize, PPF is a disciplined, long-term investment that helps in saving tax, while FD is a flexible, short-term option that comes in handy in times of need. Many savvy investors include both in their portfolio to meet both long and short term needs.