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PPF or FD: Which has higher interest rates?
21 Apr 2026

Public Provident Fund (PPF) and Fixed Deposits (FDs) are two popular investment options in India.

Both provide guaranteed returns, but differ in terms of tenure, liquidity, and risk.

While PPF is a long-term investment with tax benefits, FDs offer flexibility in terms of tenure.

Knowing the differences can help you make an informed decision based on your financial goals.

Understanding PPF and its benefits
#1

PPF is a government-backed savings scheme with a lock-in period of 15 years.

It offers attractive interest rates, which are usually higher than those of FDs.

The contributions to PPF are eligible for tax deductions under Section 80C of the Income Tax Act, making it a tax-efficient option.

However, the funds in PPF cannot be withdrawn before the maturity period, except under certain conditions.

Exploring fixed deposits
#2

Fixed deposits are offered by banks and financial institutions for varying tenures, usually from seven days to 10 years.

They provide fixed interest rates for the duration of the deposit, giving you certainty of returns.

Unlike PPFs, FDs allow premature withdrawals, usually with a penalty, making them more liquid than PPFs.

However, the interest earned on FDs is taxable as per the individual's income tax slab.

Comparing interest rates
#3

The interest rates on PPFs are set by the government every quarter and are generally higher than those offered by most banks for FDs.

As of now, PPFs offer around 7.1% interest per annum, while FD rates vary between 5% and 7% depending on the bank and tenure.

This makes PPFs a better long-term investment option if you can lock away your money.

Assessing tax implications
Tip 1

While contributions to PPF are eligible for tax deductions under Section 80C, the interest earned is tax-free up to ₹1 lakh per financial year for individuals and Hindu Undivided Families.

On the other hand, interest earned from FDs is fully taxable as per the individual's income tax slab, without any exemptions or deductions.

This makes PPF more tax-efficient than FDs.