Saving & Investing · Updated October 2026 · 6 min read
Fixed deposits (FDs) and the Public Provident Fund (PPF) are two of India’s most popular low-risk savings options. Both give predictable returns, but they work very differently on lock-in, tax and flexibility. The right choice depends on when you need the money.
In short: An FD suits short to medium goals and money you may need back. PPF suits long-term goals: it locks your money for 15 years, but its interest is tax-free and it is backed by the Government of India. Many people use both.
Quick comparison
- Returns: FD rates are set by each bank and fixed when you book. The PPF rate is set by the government every quarter and is 7.1% a year for October to December 2026.
- Lock-in: FDs run from 7 days to 10 years and can usually be broken early with a penalty. PPF runs for 15 years, with partial withdrawals allowed from the 7th financial year.
- Investment limits: FDs have no upper limit. PPF needs at least ₹500 and allows at most ₹1.5 lakh per financial year.
- Safety: FDs are insured by DICGC up to ₹5 lakh per depositor per bank. PPF is backed by the Government of India.
- Tax on interest: FD interest is added to your income and taxed at your slab rate. PPF interest and maturity are tax-free.
How FD interest is taxed
FD interest is taxable every year, whether you withdraw it or not. Banks deduct TDS at 10% (20% without PAN) if your interest from one bank crosses ₹50,000 a year, or ₹1 lakh for senior citizens. If your total income is below the taxable limit, you can submit a self-declaration form to your bank to avoid TDS. Senior citizens usually get slightly higher FD rates.
How PPF works
- Open it at a post office or an authorised bank. One account per person.
- Deposit any amount between ₹500 and ₹1.5 lakh each financial year, in one go or in parts.
- Interest is calculated monthly and credited once a year. Depositing before the 5th of a month earns interest for that month.
- After 15 years, you can close it or extend it in blocks of 5 years, with or without new deposits.
- Loans against PPF and partial withdrawals are allowed after set periods.
Under the old tax regime, PPF deposits also qualify for a deduction within the ₹1.5 lakh overall limit. Under the new regime, which is the default, this deduction is not available, but the interest is still tax-free.
An example
- PPF: ₹1.5 lakh a year for 15 years (₹22.5 lakh in total) at 7.1% would grow to about ₹40.7 lakh, all tax-free. The rate may change during this period.
- FD: ₹1 lakh for 5 years at 7% with quarterly compounding grows to about ₹1.41 lakh before tax. After tax, the effective return is lower for anyone in a higher tax bracket.
Which one suits you?
- Choose an FD for an emergency fund, a goal within 1 to 5 years, or regular interest income, for example in retirement.
- Choose PPF for long-term goals like retirement or a child’s education, especially if you are in a higher tax bracket.
- Consider both: FDs for liquidity, PPF for tax-free long-term savings.
Common questions
Can I withdraw from PPF before 15 years?
Partial withdrawals are allowed from the 7th financial year, within limits. Premature closure is allowed only in specific cases, such as serious illness or higher education, after 5 years, with a small interest penalty.
Are tax-saving FDs the same as regular FDs?
Tax-saving FDs have a 5-year lock-in and qualify for a deduction only under the old tax regime. Their interest is still taxable.
What if I miss a PPF deposit in a year?
The account becomes inactive. You can revive it by paying the minimum for each missed year plus a small penalty.
Next steps: Read what a SIP is for long-term growth options, or how much emergency fund you need.
Disclaimer: This guide is for education and is not financial or investment advice. Koshfin is not a SEBI-registered investment adviser. Returns are not guaranteed, and rates and tax rules change, so check the latest details before you invest.