Bank Fixed Deposits and PPF can be considered as two sides of the same coin, offering multiple benefits while retaining their individual characteristics. So which option is better? PPF (Public Provident Fund) or FDs (Fixed Deposit)? Here are a few key points about Fixed Deposits and PPF which might help solve the confusion.
Interest rates over the last some years have only fallen, but, the country is now staring at an interest rates hike as inflation gradually rises. At around 7 to 8 percent, interest rates are no longer what they used to be. It means you need to make the best and get maximum yields and returns on your debt instrument.
Here are four reasons why the PPF is better than Bank Fixed Deposits in the bank.
1) Superior interest rates: The Public Provident Fund offers excellent interest rates than Bank Fixed Deposits. For example, at the moment, State Bank of India can get at best offer you an interest rate of 6.75 percent. However, the Public Provident Fund can offer you an interest rate of 7.6 percent.
Though the SBI and PPF could always change interest rates; we believe that even in the longer term, the PPF interest rates would always be higher than those of Bank Fixed Deposits.
2) Interest income is free from tax Interestingly: the post-tax returns of the PPF are far superior to that of Bank Fixed Deposits, on account of the tax-free status. So, while interest earned from bank deposits is fully taxable in the hands of the investors, they are completely tax-free in the case of the Public Provident Fund. This can make a big difference to folks; whose income is fully taxable.
3) Sec 80C benefits: Bank deposits do not qualify for Sec 80C tax benefits, while PPF does. A small clarification here is that only if you invest in tax saving deposits of banks, they are eligible for the 80C benefit – all other deposits, including recurring deposits, do not. Sec80C benefits provide you a tax rebate of up to Rs 1.5 lakhs per annum.
4) Safety: Bank fixed deposits can give you safety in the form of insurance safety of Rs 1. lakh only. The Public Provident is much safer. Also, one important thing is that given the tenure of PPF of 15 years, it helps to build a corpus, as against Bank Fixed Deposits which can quickly be withdrawn anytime.
Conclusion: If you are betting on tax benefits, along with safety and superior returns, you need to consider the PPF strongly. However, the only drawback is that you can deposit only a maximum sum of Rs 1.5 lakhs every year. In any case, the advantages of this government guaranteed investment scheme far outweigh the disadvantages. So, go for the same, keeping a long-term perspective in mind.