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PPF v/s FD: Which is better for tax savings?
02 Mar 2026

Public Provident Fund (PPF) and Fixed Deposits (FDs) are two popular investment options in India. Both offer different benefits when it comes to tax savings.

PPF is a long-term savings scheme backed by the government, while FDs are offered by banks and financial institutions for a fixed period.

Knowing the differences between the two can help you make informed decisions for your financial goals.

Understanding PPF benefits
#1

PPF is a government-backed scheme with a tenure of 15 years. It offers an attractive interest rate, which is usually higher than most FDs.

The amount deposited in PPF is eligible for tax deduction under Section 80C of the Income Tax Act, up to ₹1.5 lakh per annum.

The interest earned on PPF accounts is tax-free, making it an attractive option for long-term savings.

Fixed deposits: A brief overview
#2

Fixed deposits are offered by banks and financial institutions for a fixed tenure ranging from seven days to 10 years.

The interest rates on FDs vary according to the bank and tenure but are generally lower than PPF rates.

While you can earn interest on FDs, it is taxable according to the individual's income tax slab.

However, senior citizens get higher interest rates on FDs.

Comparing tax benefits
#3

Both PPF and FD provide tax benefits, but in different ways.

Investments in PPF qualify for deductions under Section 80C, whereas FDs don't have this provision unless they're tax-saving fixed deposits with a five-year lock-in period.

However, the interest earned on PPF accounts is exempt from taxes, unlike regular FDs where interest gets taxed as per income brackets.

Liquidity considerations
#4

Liquidity is another factor to consider when choosing between PPF and FD.

PPF has a lock-in period of 15 years with partial withdrawals allowed after seven years under certain conditions.

On the other hand, FDs offer more flexibility with shorter tenures and premature withdrawal options (subject to penalties) if you need access to funds before maturity.