PPF vs FD: Meaning, Features and Key Differences

6 mins read
by Angel One
In the world of investments, two popular choices are Fixed Deposits (FDs) and Public Provident Fund (PPF). Let us see which one is better for you!

Many people wonder, “FD or PPF, which is better?” This decision often revolves around risk tolerance, financial goals, tax benefits, and flexibility. Here, we explore the benefits of both FDs and PPFs, considering aspects like guaranteed returns, interest calculation methods, and the convenience of tools like FD and PPF calculators. 

Throughout this article, we explored the benefits of both FDs and PPFs, considering factors like risk tolerance, financial goals, tax advantages, and flexibility. We have tried to make you understand the difference between PPF and FD. Whether one leans towards the stability of a 15-year lock-in period with PPF or the flexibility of FDs, the decision rests on understanding these financial tools. Additionally, we delved into interest calculation methods as well. 

Meaning of a Fixed Deposit

A Fixed Deposit (FD), also known as a term deposit, is a secure investment option allowing individuals to deposit a lump sum amount in a bank for a predetermined period, earning fixed interest rates. This financial tool is widely offered by banks, including commercial and small finance institutions, as well as non-banking financial companies.

When considering the tenure, the difference between PPF and FD becomes evident, as PPF has a fixed 15-year lock-in period, while FDs offer varying tenures ranging from 7 days to 10 years, providing options based on individual financial goals.

Key Features of Fixed Deposits:

1. Interest Rates:

The difference between PPF and FD lies in their interest calculation methods, with PPF offering compounded annual interest, while FDs can use either compound or simple interest, providing flexibility for investors.

2. Secure Investment:

FDs offer a secure and stable investment avenue. The returns are guaranteed, making FDs less susceptible to market fluctuations. Even if general interest rates decrease during the FD tenure, the account holder continues to receive the initially agreed-upon interest.

3. Return on Investment:

Returns on FDs depend on the interest rate and the chosen deposit type. Options include receiving interest payouts monthly or quarterly or opting for reinvestment for the compounding benefits.

Check Out the FD Calculator

Benefits of Fixed Deposit 

1. Stable Returns:

Fixed deposit accounts offer a predetermined and stable interest rate, ensuring investors can anticipate and plan for their returns with certainty.

2. Low Risk:

Considered a low-risk investment, fixed deposits are not influenced by market fluctuations, making them an attractive and secure option for conservative investors.

3. Capital Preservation:

The principal amount invested in a fixed deposit is preserved, and investors are assured of receiving both the initial investment and accumulated interest at the time of maturity.

4. Flexible Tenure Options:

Banks provide a variety of tenure options for fixed deposits, allowing investors to tailor their investments to align with specific financial goals, ranging from short to long-term durations.

Meaning of Public Provident Fund

The Public Provident Fund (PPF) is a government-backed investment and tax-saving tool introduced by the Ministry of Finance over 50 years ago. The difference between FD and PPF lies in their issuing authorities; while Fixed Deposits are offered by banks, Public Provident Funds (PPF) is a government-backed investment tool. 

In comparing PPF v FD, it’s evident that the Public Provident Fund (PPF) offers a low-risk investment with guaranteed returns, backed by the Indian government.

Benefits of a PPF Account

1. Low-Risk Investment with Guaranteed Returns:

The PPF scheme, being backed by the Indian government, presents a low-risk investment option. The assurance of government support minimises the risk of losing invested funds. Additionally, the scheme offers adequate returns, providing investors with financial security.

2. Tax Benefits:

PPF accounts come with significant tax benefits, making them an attractive choice for investors. When considering  PPF v FD, tax benefits become a significant factor, with PPF providing entirely tax-free returns and deductions under Section 80C of the Income Tax Act. This tax-efficient feature enhances the overall returns on investment.

3. Minimum Investment with Good Returns:

PPF accounts offer the flexibility of initiating with a minimum investment of just ₹ 500, accommodating various financial capacities. Considering PPF v FD, the minimum investment with good returns makes PPF a flexible choice, allowing investors to start with as little as ₹ 500 while earning a stable annual interest of 7.1%.

While PPF provides a low-risk investment with guaranteed returns, the debate of “FD or PPF, which is better?” often hinges on the individual’s preference for liquidity and flexibility, with FDs being a popular choice for those priorities.

4. Loan and Withdrawals:

A notable advantage of a PPF account is the option to avail loans after 3 years, allowing borrowers to use up to 25% of the balance in emergencies. After 6 years, investors can make partial withdrawals, enhancing financial flexibility. Additionally, the account can be closed if commitment becomes challenging.

Check out the PPF Calculator

PPF vs. FD 

Issuing authority NBFCs and Banks Government of India
Minimum Deposit Amount ₹100 to ₹1000 ₹500
Liquidity Moderate liquidity Low liquidity
Tenure 7 days – 10 years (20 years for some banks) 15 years (extendable in blocks of 5 years)
Eligibility Residents, HUFs, Trust, Corporation Firms, etc. including NRIs Indian Residents
Interest Rate FD rates range from 2.90% to 9.05% The PPF interest rate is currently at 7.1%
Loan against Deposit Available Available only after 3rd financial year
Premature withdrawal Allowed for certain FD types Allowed from 5th financial year
Taxation benefit on deposits made Tax exemption up to ₹1.5 lahks under section 80C for tax-saving FDs Deposits qualify for deduction under section 80C, with a maximum of ₹1.5 lakhs per year inclusive of all investments

Interest Calculation for FDs and PPFs

In the case of a Public Provident Fund (PPF), the interest earned on deposits is compounded annually. This means that the interest is calculated not just on the initial deposit but also on the interest that has been added previously. There are two common methods for calculating interest on deposits: compound interest and simple interest.

To make things easier, you can use online tools like the FD Calculator and the PPF Calculator. These tools are free and can be used multiple times. You input basic details such as FD interest rates or PPF rates, deposit amount, and term. The calculator then gives you an estimate based on these inputs.


When deciding between Fixed Deposits (FDs) and Public Provident Funds (PPF), it’s crucial to weigh your preferences, financial goals, and the specific benefits each option offers. PPFs have a 15-year lock-in period, while FDs offer flexibility and liquidity, so understanding the nuances helps you make an educated decision. Tax benefits, interest calculation methods, and the availability of online tools further assist in navigating the choices. Ultimately, the best choice depends on your individual needs, and both FDs and PPFs present valuable opportunities for rewarding investments.


Can I extend the life of my PPF account?

Yes, the tenure of a PPF account can be extended in 5-year increments. This provides investors with the flexibility to continue their investment and benefit from the scheme’s stability over an extended period.

Is it possible to start a savings account on the Internet?

Yes, it is possible to open an FD account online. Many banks offer the convenience of online account opening, allowing investors to initiate and manage their fixed deposits through Internet banking services.

FD vs. RD vs. PPF, which is better?

The choice depends on your financial situation and goals. If you have a lump sum amount, an FD might be a suitable choice. A Recurring Deposit (RD) could be more appropriate for those without a lump sum. PPF, being a 15-year scheme, is ideal for long-term investors.

Which is better, PPF or FD?

Choosing between PPF and FD depends on personal preferences and financial goals. Opt for PPF if comfortable with a 15-year lock-in period and seeking stability. If flexibility and liquidity are priorities, FDs may be a better fit.

What is the difference between a bank and a firm fixed-income investment?

Bank fixed deposits are exclusive to banks, whereas corporate fixed deposits, issued by non-banking financial institutions and businesses, typically offer higher interest rates. However, it’s crucial to recognise that corporate FDs are unsecured, and lack deposit insurance coverage.