PPF at 7.1% vs bank FDs at 7.0–7.5%. On paper, they look similar. But after tax, they're very different. And after 15 years, the gap is significant. Here's the honest math for FY 2025-26, with real numbers you can verify yourself.
PPF
Bank FD
The Tax Situation: Where PPF's Real Advantage Lies
PPF enjoys the rare EEE (Exempt-Exempt-Exempt) status:
- Investments: Exempt under 80C (up to ₹1.5 lakh)
- Interest: Completely tax-free
- Maturity: Completely tax-free
Bank FD interest is fully taxable as "Income from Other Sources" at your marginal slab rate. TDS is deducted at 10% if annual interest exceeds ₹40,000 (₹50,000 for senior citizens), and you pay the difference at your slab rate.
Post-Tax Returns: The Real Comparison
Assuming ₹1,50,000/year invested for 15 years at PPF rate 7.1% vs FD at 7.25%:
| Tax Bracket | PPF (pre-tax = post-tax) | FD effective post-tax return | Winner |
|---|---|---|---|
| 5% slab | 7.1% | 6.89% | PPF (+0.21%) |
| 20% slab | 7.1% | 5.80% | PPF (+1.30%) |
| 30% slab | 7.1% | 5.07% | PPF (+2.03%) |
Even at the 5% slab where the difference is small, PPF wins. At the 30% slab, PPF's effective 7.1% tax-free crushes the FD's 5.07% after-tax return.
Maturity Corpus: ₹1.5 Lakh/Year for 15 Years
| Instrument | Total Invested | Maturity (approx) | Gain | Tax on Gain | Net Corpus |
|---|---|---|---|---|---|
| PPF @ 7.1% | ₹22,50,000 | ₹40,68,209 | ₹18,18,209 | ₹0 | ₹40,68,209 |
| FD @ 7.25% (30% bracket) | ₹22,50,000 | ₹39,82,000 | ₹17,32,000 | ~₹5,19,600 | ₹34,62,400 |
The after-tax difference for a 30% bracket taxpayer: ₹6.05 lakh in favour of PPF over 15 years — from ostensibly similar nominal rates.
Where FD Wins: Flexibility and Liquidity
PPF's advantages come with real constraints. FD wins on:
Tenure Flexibility
FDs are available from 7 days to 10 years. PPF is locked for 15 years (with partial withdrawals allowed from year 7, and loans against PPF from year 3). If you need the money in 3–5 years, PPF is the wrong choice.
Liquidity
FDs can be broken before maturity with a small penalty (typically 0.5–1% loss of interest rate). PPF has strict withdrawal rules — you cannot close it before 15 years except under specific conditions (life-threatening illness, higher education, NRI status change). Premature closure attracts a 1% interest reduction.
No Annual Investment Limit Constraint
PPF accepts maximum ₹1,50,000/year. If you have more to invest in a guaranteed-return instrument, FD handles it. You can open FDs of any amount — ₹1 crore+ with banks.
Using the Calculators to Compare Your Situation
The PPF Calculator uses the fixed 7.1% rate (current government-set rate, reviewed quarterly) and shows year-by-year interest and balance in an amortisation table. You can set tenure from 15 to 50 years and change the annual deposit amount.
The FD Calculator lets you enter any interest rate, tenure in days/months/years, and compounding frequency. Compare the pre-tax maturity figure, then mentally subtract your tax bracket percentage from the interest earned to get the after-tax corpus.
The Verdict: Who Should Choose What
| Your Profile | Recommended Choice |
|---|---|
| 30% tax bracket, long horizon (15+ years), can lock ₹1.5L/year | PPF first, top up with FD |
| 20% tax bracket, medium horizon (5–15 years) | PPF for long portion, FD for shorter |
| 5% or 0% tax bracket, short horizon | FD (tax difference minimal, flexibility wins) |
| Senior citizen (higher FD rates, ₹50K TDS limit) | FD (senior citizen FD rates often 0.25–0.5% higher) |
| Need money in under 5 years | FD (PPF cannot be closed) |
Year-by-year breakdown. Real interest calculations. Free.