Key Takeaways
- FDs offer flexible terms; PPF is a long-tenure scheme.
- PPF interest compounds annually and is set by the government.
- FDs are more liquid; PPF has withdrawal restrictions.
- PPF rules and rates are statutory and change — verify before relying on them.
On this page
Different by design
A fixed deposit is a bank product you can open for a wide range of terms. The Public Provident Fund (PPF) is a government-backed long-term savings scheme with a fixed long tenure and annual contribution limits set by rule.
Side by side
| Factor | Fixed Deposit | PPF |
|---|---|---|
| Term | Flexible (days to years) | Long, fixed tenure |
| Rate set by | The bank | The government (statutory) |
| Compounding | Often quarterly | Annual |
| Liquidity | Higher (with penalty) | Restricted, with rules |
The liquidity trade-off in practice
An FD can be broken any working day; you typically lose 0.5–1 percentage point of interest as a penalty and earn the rate applicable to the period actually held. PPF, by contrast, allows partial withdrawals only from the seventh financial year onward and within limits, with loans permitted earlier under scheme rules (verify current provisions at the National Savings Institute). If there is any realistic chance you will need the money within five years, this difference should dominate the rate comparison.
Tax changes the real comparison
FD interest is added to your income and taxed at your slab, and banks deduct TDS above a threshold. PPF interest has historically been exempt. For a depositor in the 30% bracket, a 7% FD delivers about 4.9% after tax, while a 7.1% PPF delivers the full 7.1% — a wider gap than the headline rates suggest. For someone with little other income, the FD's interest may fall below the taxable threshold and the gap shrinks. Our FD/RD taxation guide explains the mechanics.
A practical middle path: laddering
Many savers use both: PPF for the 15-year core, and a ladder of FDs — say ₹1 lakh each maturing in 1, 2, 3, 4 and 5 years — for medium-term needs. As each FD matures it is reinvested for five years, so one deposit becomes available every year without breaking anything. Model each rung with the FD calculator and the long-term core with the PPF calculator.
Verify the rules
PPF interest rates, contribution limits, and withdrawal rules are statutory and are revised from time to time. We deliberately do not hardcode them. Check the National Savings Institute and other primary sources for current figures before making decisions. Use the FD calculator and PPF calculator with your own rate assumptions to compare illustrative outcomes.
Sources
We reference primary and official sources. Rate- and rule-dependent details must be verified against the latest official information.
Related Calculators
Related Guides
How Is Interest on FDs and RDs Taxed?
Interest earned on fixed deposits and recurring deposits is fully taxable as 'income from other sources' at your slab rate. Banks may deduct TDS above thresholds, but you owe tax on the interest either way. The post-tax return is what to compare against alternatives.
retirementPPF vs FD
Both PPF and FDs prioritise stability, but PPF is a long-tenure, government-set scheme with annual compounding, while FDs are flexible bank deposits with bank-set rates.
bankingWhat Is a Fixed Deposit?
A fixed deposit is a deposit placed with a bank for a fixed term at an interest rate agreed at the time of booking, offering predictable returns and high capital stability.
retirementWhat Is the Public Provident Fund (PPF)?
PPF is a long-term, government-backed savings scheme where you contribute each year and earn annually compounded interest at a rate set by the government. Its rules are statutory and change over time.