Difference Between PPF and Fixed Deposit: An Overview
Planning for your future is difficult, especially when you are young and have many expenses. But, if you don’t start saving money now, you will have to work harder when you grow older and retire sooner. The good news is that different options are available for savers of all age groups.
If you are someone who wants peace of mind in your retirement time, then these two investment options might be just what you’re looking for – PPF and FD. These two financial products can easily help people save money for the future. Both schemes have pros and cons; therefore, it is essential to understand the differences between PPF and FD before choosing one. Keep reading to know more about these two investment schemes and choose wisely.
What is a PPF Account?
PPF, or Public Provident Fund, is a government-sponsored long-term fixed-income savings plan. It provides tax advantages as well as set and assured returns. It is one of the tax-saving tools available under Section 80C of the old Income Tax Act. The PPF account has a 15-year term and cannot be terminated early unless specific conditions are met. However, after five years, the account holder can withdraw a portion of the funds. You can remove 50% of your amount from the previous fiscal year's end.
Key Features of PPF:
- The Public Provident Fund, or PPF, is a government-sponsored long-term savings plan.
- You can deposit up to 150,000 per year in PPF and benefit from Section 80C tax concessions.
- PPFs have a 15-year lock-in term, although you can take partial withdrawals after a certain number of years.
- The total investment, interest received, and maturity amounts are all tax-free.
- Post offices, nationalised banks, and private banks provide PPF account opening services.
- NRIs cannot open PPF accounts. Following the announcement issued in October 2017, if they had a PPF account when they were residents, that account would have been closed as of the day they became NRIs.
What is a Fixed Deposit Account?
Fixed deposits (FDs) are one of the most straightforward financial products, with significantly higher interest rates than conventional savings accounts. Interest builds up on the deposited funds over a predetermined period and decides by the provider. Seniors get high-interest rates on their FDs. You may immediately liquidate your FD and obtain the cash in an emergency.
Key Features of Fixed Deposits
- You may earn interest with a fixed deposit, which is a secure investment.
- Fixed Deposits provide assured returns and no chance of losing the initial investment.
- Fixed Deposit returns are relatively stable compared to other investment plans.
- The law imposes a tax on all interest gains over 40000 from fixed deposits. But you claim the tax deduction on interest.
- You are eligible for top-up loans secured by a fixed deposit.
Differences Between PPF and Fixed Deposit
Investments in FDs and PPFs are pretty convenient for investors. But there are some significant distinctions between them.
| Topics | Fixed Deposits | PPF |
| Issuing authority | NBFCs and Banks | Government of India |
| Investment Amount | There is no limit during investments in FDs. | PPF has a limit of upto 1,50,00 rs for a financial year. |
| Tenure | The fixed deposits have flexible terms. Investors in FDs can select the term that best suits their needs. FDs can work for anything from seven days to ten years. | A PPF has a 15-year lock-in period. After completion, you can withdraw the total amount. Additionally, there is a choice to prolong the term by increments of five years following maturity. |
| Eligibility | All Indian citizens, including residents, non-residents, and those of Indian ancestry, are entitled to book an FD. | Indian Residents can open for PPF. |
| Interest Rate | FD interest rates range from 5% to 7% annually, depending on the bank selected. The ROI for the company's FDs is more significant and can vary from 10 to 13%. | The Indian government sets the ROI of PPF, which is now 7.1% every year. |
| Loan Facility | The loan against FD is available. On continuous FDs, the loan amount may not exceed 75% of the deposited amount. For quasi FDs, the loan amount is significantly less, at around 60% of the entire amount invested. | The PPF must be locked for a minimum of three years before one can borrow from it. |
| Premature withdrawal | FDs are more liquid assets since you may withdraw your money anytime. | The lock-in period for PPF is 15 years. PPF is a significantly less accessible option due to the lengthy lock-in period, particularly if you want immediate money. However, after investing for seven years, you can start making partial withdrawals. |
| Tax benefits on investment | Fixed deposit interest is subject to taxation. However, some tax advantages are available if you choose a five-year tax-saving FD. | PPF is a common tax-saving strategy since payments are eligible for a deduction of up to Rs. 150,000. |
PPF Account vs Fixed Deposit: Which is a Better Investment?
A one-time lump sum investment is necessary to open a tax saver FD. This investment will produce respectable returns if you manage such a commitment, and it's only sequestered for five years. You can make as many PPF deposits as you'd like, but each one must be at least Rs. 500 and cannot exceed Rs. 1.5 lakh every year. Therefore, PPF is an attractive choice for you if you are the kind that enjoys regular deposits. You can deposit more cash when you receive it.
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Wrapping Up
Throughout this article on PPF vs FD, we have furnished you with a detailed comparison between the two. It was great, right? With all the information you received in this article, it should be much easier for you to take a good decision about your future. PPF is one of the most significant schemes of all time, but it has its share of flaws. That makes FD an equally good option. Therefore, when choosing between these two products, you must weigh your options and see which one suits you the best. As far as everything else is concerned, such as the employer’s contribution or maturity options, both are worth checking out.
What are PPF's advantages?
One of the most well-known long-term savings plans, the Public Provident Fund (PPF), encourages tiny deposits like investments and earns dividends on them. PPF offers a reasonable rate of interest and returns on investments as a government-sponsored savings programme.
Is SIP superior to PPF?
PPF has less liquidity. After seven years, you can partially withdraw your money. SIPs are riskier since the equity market's performance affects them. PPF provides guaranteed returns, making it a safer investment choice.
What is the interest earned from a PPF account?
PPF accounts now have an interest rate of 7.1%. The Indian government determines the interest rate.
What is the FD's new rule?
The new FD regulation concerns interest that is paid on FDs that are unclaimed or past due. According to the new rule, the unclaimed sum will earn a lower interest rate if a term deposit matures and funds are not paid.
What are the many ways that business FDs can pay their interest?
Indian corporate fixed deposits offer alternatives for both cumulative and non-cumulative interest payments.