As a convenient and safe form of savings, we look to invest either in Public Provident Fund (PPF) or Fixed Deposit (FD). All though both are investment instruments, the differences between PPF and FD are substantial, and each comes with its own set of features that make them unique.
Fixed Deposit (FD)
Fixed Deposits are one of the most popular ways to save money. They are a safe investment, offer good returns, and are easy to open in India.
What is a Bank Fixed Deposit?
Fixed Deposit, also called Term Deposit is an investment where the interest rate is guaranteed not to change for the nominated term, so you know exactly what your investment is worth.
In a Fixed Deposit, you put a lump sum in your bank for a fixed tenure at an agreed rate of interest. At the end of the tenure, you receive the amount you have invested plus compound interest.
Bank FD has the biggest benefit of any time liquidation. You put money in FD for 5 years and you need money after 1 year, you can withdraw money any time.
See also National Savings Certificate
A Fixed Deposit offers guaranteed returns. Unlike market-led investments where returns fluctuate over time, the returns on an FD are fixed when you open the account. Even if interest rates fall after you open a Fixed Deposit, you will continue to receive the interest decided at the start.
Return on investment
Your return on an FD will depend on the interest rate and the type of deposit you choose. You can opt for a monthly or quarterly pay-out of interest or the reinvestment option, which will give you the benefit of compounding.
Loan against FD
While FDs are fixed for an agreed tenure, you can take a loan against it when you need funds. Bank offers loans against FD in the form of an overdraft, and you can get up to 90% of your FD amount. The benefit is that your FD continues to earn interest, you don’t have to prematurely withdraw your FD, and end up paying a penalty.
FD Interest rates
Interest rates on FDs are fixed when you open the deposit and the rate depends on the term that you wish to hold it for. Calculator.
Compare Fixed Deposit Interest Rates 2019 in India
|Bank||FD Rate of Interest||Senior Citizen FD Rates|
|SBI Fixed Deposit||5.75% – 7.00%||6.25% – 7.50%|
|HDFC Bank Fixed Deposit||3.50% – 7.40%||4.00% – 7.90%|
|ICICI Bank Fixed Deposit||4.00% – 7.50%||4.50% – 8.00%|
|Axis Bank||3.50% – 7.30%||3.50% – 7.95%|
|Kotak Bank||3.50% – 7.20%||4.00% – 7.70%|
|IDFC First Bank||4.00% – 8.25%||4.50% – 8.75%|
|Bank of Baroda||4.50% – 6.85%||5.00% – 7.35%|
|Citibank||3.00% – 6.50%||3.50% – 7.00%|
|IDBI Bank||5.75% – 7.25%||5.75% – 7.75%|
Public Provident Fund (PPF)
Public Provident Fund (PPF) scheme is a popular long term investment option backed by Government of India which offers safety with attractive interest rate and returns that are fully exempted from Tax .Investors can invest minimum Rs. 500 to maximum Rs. 1,50,000 in one financial year and can get the facilities such as loan, withdrawal and extension of account. PPF comes with zero risk as its interest is paid by the Central Government.
Key Features of Public Provident Fund
PPF has a lock-in period of 15 years.
Deposit Amount as low as Rs.500 and maximum Rs.1.5 Lac in one financial year.
The PPF rate for April – June 2019 (Q1 FY 2019-2020) is 8%.
Premature or partial withdrawals can be made after the 5th year.
Partial withdrawal facility can be availed from 7th financial year onwards.
Loan facility is available against PPF after the 3rd year till the 6th year.
Interest on PPF is tax-free.
Eligibility for opening PPF account
Public Provident Fund (PPF) account can be opened by resident Indian. Individuals in their own name as well as on behalf of a minor can open the account at any Branch. As per extant instructions, the opening of PPF accounts in the name of Hindu Undivided Family is not permitted.
PPF Interest Rate
The rate of interest is determined by Central Govt. on a quarterly basis. At present, it is 8.0% per annum with effect from 01.10.2018. Interest is calculated on the minimum balance (in PPF Account) between 5th day and end of the month and is paid on 31st March every year.
What are the tax benefits of investing in PPF?
PPF is one investment vehicle that falls under the Exempt-Exempt-Exempt (EEE) category. This, in other words, means that all deposits made in the PPF are deductible under Section 80C of the Income Tax Act. Furthermore, the accumulated amount and interest is also exempt from tax at the time of withdrawal.
It is important to note that a PPF account cannot be closed before maturity. A PPF account, however, can be transferred from one point of designation to another. But, do remember that a PPF account cannot be closed prematurely. Only in the case of the account holder’s demise can the nominee’s file for the closure of the account.