PPF vs FD: Which one should you pick for the long haul?

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For anyone planning to stay invested for a decade or more, Public Provident Fund and bank fixed deposits feel like natural options because both offer safety and predictable returns. Yet they work very differently. PPF is a government-backed scheme with tax-free maturity, while fixed deposits depend on bank rates and offer easier access. Understanding how they grow over time helps you choose the smarter fit for your goals.

Public Provident Fund (PPF) currently pays 7.1 percent per year. Typical bank fixed deposits (FDs) have been around the mid-6 percent range; for example, HDFC Bank and Kotak Mahindra Bank offer an interest rate of 6.4 percent for a three-year FD. It means that Rs 1 lakh will become Rs 1,19,200 on the date of maturity. Rates move over time, but that’s the ballpark comparison today.

This is the big divider. PPF returns are completely tax-free—both the yearly interest and the maturity amount. FD interest is added to your income and taxed as per your slab. So if you’re in the 30 percent bracket and your FD pays 6.25 percent, your post-tax return drops to about 4.38 percent. Over 10-15 years, that tax drag can let PPF pull ahead even if an FD headline rate starts a little higher.

PPF locks your money for 15 years, though you can make partial withdrawals after five financial years and also extend in 5-year blocks later. FDs are flexible: you can break them early (usually with a small penalty) and choose tenures from a few days to several years. If you need easy access, FDs are more convenient.

Both are popular with conservative savers. PPF is backed by the government and considered very safe. Bank FDs are also seen as safe, especially with large, well-rated banks, but the returns are taxable and depend on bank-offered rates.

· If you’re in a higher tax bracket and can stay invested for the long term, PPF usually wins because tax-free compounding adds up.

· If you want liquidity, varied tenures, or you’re in a low tax bracket (or have low taxable income), FDs can fit better. Many households use both: PPF for long-term, tax-efficient compounding and FDs as a flexible parking place for shorter goals or emergency buffers.

For building long-term wealth with low risk, PPF’s tax-free compounding is hard to beat. For short-to-medium goals or when you may need your money back without a long wait, FDs are simpler. Pick based on your tax slab, time horizon, and how much access you’ll need to your cash.