PPF vs FD: Which Gives You More After Tax?
Updated 4 October 20265 min read
PPF and FDs are both safe, fixed-return options, so it's natural to compare their headline rates. But FD interest is taxed every year while PPF interest is tax-free, and that changes the answer for most taxpayers.
The headline rates
PPF pays 7.1% (October–December 2026), compounded yearly and completely tax-free. Bank FDs for 1–5 years pay roughly 6–7% (more at small finance banks), compounded quarterly, and the interest is taxed at your slab rate. The comparison below generously assumes a 7% FD.
15 years of ₹1.5 lakh a year
Investing ₹1.5 lakh at the start of each year for 15 years (₹22.5 lakh in total):
| Option | After-tax yield | Value after 15 years |
|---|---|---|
| PPF at 7.1% | 7.10% | ≈ ₹40.7 lakh |
| FD at 7%, 5% slab | ≈ 6.81% | ≈ ₹39.7 lakh |
| FD at 7%, 20% slab | ≈ 5.69% | ≈ ₹36.0 lakh |
| FD at 7%, 30% slab | ≈ 4.94% | ≈ ₹33.8 lakh |
FD figures assume the 7% rate compounds quarterly (7.19% effective), tax plus 4% cess is paid on interest each year, and the post-tax amount is reinvested.
Beyond returns
- Lock-in: PPF runs 15 years, with partial withdrawals from year 7. FDs can be broken early for a small penalty.
- Safety: PPF is government-backed. Bank FDs are insured by DICGC up to ₹5 lakh per bank per depositor.
- Limits: PPF caps deposits at ₹1.5 lakh a year; FDs have no limit.
- Tax deduction: PPF deposits qualify for 80C in the old regime.
Which should you choose?
- Long-term safe savings and you pay tax at 20% or 30%: PPF wins clearly.
- Emergency fund or goals within 5 years: FD (or a sweep-in account) for liquidity.
- Senior citizens in a low slab: FDs with the senior-citizen rate can match or beat PPF, and SCSS (8.2%) is worth a look.
Frequently asked questions
Can I have both PPF and FDs?
Yes, and most people should: PPF for long-term safe savings, FDs for shorter goals and emergencies.
Does the new tax regime make PPF less attractive?
You lose the 80C deduction on deposits, but PPF interest and maturity stay tax-free, so it still beats taxable FDs for most people.
This guide is for general education and is not investment, tax or legal advice. Rules and rates change; check the latest official sources or a qualified adviser before acting.