PPF vs Fixed Deposit
Tax-free 7.1% PPF or 7-8% fixed deposit with TDS - which actually puts more in your pocket?
TLDR
FD posts a 7-8% headline rate but you pay tax at your slab rate on the interest, so the effective return for a 30% bracket is just 4.9-5.6%. PPF's 7.1% is fully tax-free, so the equivalent FD rate would need to be ~10.1% to match. For anyone in the 20%+ tax bracket, PPF wins by a wide margin on after-tax return. FD only beats PPF if you need access in under 5 years.
Side-by-side comparison
| Criterion | PPF | Fixed Deposit | Winner |
|---|---|---|---|
| Headline rate | 7.1% (FY26 Q1) | 7-8% (varies by bank, tenure) | Fixed Deposit |
| Tax on interest | Tax-free (EEE) | Taxed at slab rate (10-30%) | PPF |
| Effective rate (30% tax bracket) | 7.1% | 4.9-5.6% | PPF |
| Effective rate (20% tax bracket) | 7.1% | 5.6-6.4% | PPF |
| Effective rate (10% tax bracket) | 7.1% | 6.3-7.2% | PPF |
| Effective rate (0% tax bracket) | 7.1% | 7-8% | Fixed Deposit |
| Lock-in | 15 years | 7 days to 10 years (your choice) | Fixed Deposit |
| Premature withdrawal | Allowed from year 7 (limited) | Allowed anytime with 0.5-1% penalty | Fixed Deposit |
| 80C deduction (contribution) | Up to Rs 1.5L/year | Only 5-year tax-saver FD up to Rs 1.5L | Tie |
| TDS at source | None (no tax) | 10% if interest > Rs 40K/year (senior: Rs 50K) | PPF |
| Maximum investment | Rs 1.5L/year | Unlimited | Fixed Deposit |
| Sovereign safety | 100% government-backed | Up to Rs 5L per bank covered by DICGC | PPF |
Run your own numbers
Plug in your numbers - the calculator updates instantly. Same math, your inputs.
Estimates only. Returns are not guaranteed. Tax rules and rates current as of 2026-05-16.
When each one wins
When PPF wins
- You're in the 10%+ income tax bracket (most working adults)
- You want guaranteed sovereign returns for 15+ years
- You're maxing out Section 80C[1] deductions
- You're a long-term saver (15+ year horizon)
- Your spouse / kids can also have their own PPF (each Rs 1.5L)
When Fixed Deposit wins
- You need access to the money within 1-5 years
- You're a senior citizen below the 60+ no-tax-on-FD-interest threshold
- You're in the 0% tax bracket (income below the basic exemption)
- You want to park large amounts (above Rs 1.5L/year, which PPF caps)
- You want to ladder FDs across different maturities for liquidity
The math (typical scenario)
Same Rs 1.5 lakh per year for 15 years, comparing after-tax returns:
PPF (7.1% EEE) Annual contribution: Rs 1,50,000 Years: 15 Maturity (tax-free): Rs 40.7 lakh Total contribution: Rs 22.5 lakh Net tax-free gain: Rs 18.2 lakh FD (Rs 1.5L/year recurring at 7.5%, 30% tax bracket) Annual contribution: Rs 1,50,000 Years: 15 Effective post-tax rate: 7.5% * (1 - 0.30) = 5.25% Maturity: Rs 1,50,000 * [((1.0525^15 - 1) / 0.0525)] = Rs 33.3 lakh Total contribution: Rs 22.5 lakh Net post-tax gain: Rs 10.8 lakh Difference: Rs 7.4 lakh - 41% MORE in PPF for the same outflow.
The after-tax rate that actually matters
FD headline rate is a lie if you pay tax
Banks advertise 7-8% on FDs, but that's before tax. If you're in the 30% bracket (income above Rs 15L), your actual post-tax return is 7.5% × 0.70 = 5.25%. PPF's 7.1% beats this by 1.85 percentage points - which on Rs 50 lakh corpus over 10 years compounds to over Rs 13 lakh extra wealth.
Senior citizen exception
Senior citizens (60+) get an additional Rs 50K tax-free interest exemption under Section 80TTB on bank deposits. For seniors with FD income under Rs 50K/yr, FDs are effectively tax-free, matching PPF's EEE status. Above that, PPF wins again.
Tax-saver FD vs PPF
The 5-year tax-saver FD also qualifies for 80C deduction. But its interest is STILL taxable, so the comparable post-tax return is much worse than PPF. Tax-saver FDs only make sense if you've already maxed PPF and want more 80C room (rare - most can't max even Rs 1.5L).
Frequently asked questions
Why is PPF interest tax-free but FD interest taxed?
PPF was designed as a retirement-savings vehicle with EEE status to encourage long-term saving. FDs are short-to-medium-term deposits without that tax shelter.
Is the 7.1% PPF rate[2] locked for 15 years?
No - the rate is revised quarterly by the Finance Ministry. The current rate applies to deposits made in that quarter, then accrues at the rate of each subsequent quarter.
Should I do FD for short term and PPF for long term?
Yes, that's the textbook split. Emergency fund + 1-3 year goals in FDs/savings account. Long-term wealth building (5+ years) in PPF + equity mutual funds.
Can I have FD AND PPF at the same time?
Of course. Most Indians do. PPF is one bucket of your portfolio; FDs are another (typically the safe-emergency-buffer bucket).
Is FD safer than PPF?
Neither has lost capital in modern Indian history. PPF is government-backed; bank FDs are insured up to Rs 5L per bank by DICGC. PPF is marginally safer but both are functionally risk-free.
What about FD vs PPF for senior citizens?
Seniors get FD interest tax-free up to Rs 50K under 80TTB. For income above that, PPF's 7.1% still beats post-tax FD. Run the numbers with your specific slab.
Can NRIs invest in PPF?
No new PPF accounts for NRIs since 2018. Existing accounts can be continued until maturity but not extended. FDs are open to NRIs via NRE/NRO accounts.
How is the FD rate decided?
Each bank sets its FD rates based on RBI repo rate + the bank's funding needs + competition. PPF rate is set centrally by the Finance Ministry.
What's the senior citizen FD rate vs PPF?
Senior FDs typically pay 50-75 bps higher than regular FDs (so 7.5-8.5%). After tax (and 80TTB exemption), seniors might match PPF's 7.1% on FDs, but PPF still wins for 5+ year horizons due to no rate-renewal risk.
Should I break my FD to put it in PPF?
Only if you don't need the money. PPF locks you in for 15 years. If you're certain about the horizon and want better after-tax returns, yes.