Fixed Deposit vs PPF: Differences, Interest Rates, Tax Benefits and Returns

The main differences concern tenure, how interest is set and paid, access to funds, tax treatment and the institution or scheme involved.

Neither option is automatically better for every saver. The more suitable choice depends on the goal, the time available and how much access to the money may be needed.

FD rates vary by institution, tenure, deposit amount, payout choice and depositor category. PPF’s interest rate is notified by the government for the relevant period.

For 1 October to 31 December 2026, the PPF interest rate is 7.1% per annum. This rate is subject to the government’s quarterly review process.

Below is Bajaj Finance’s late FD rates, effective from w.e.f 07 October, 2026, include the following cumulative rates:

These are published rates for the specified product and payout option, not rates available on every FD. Periodic payout rates can differ from cumulative rates. Check the official rate table for current terms.

How should you compare these rates? Consider the tenure, interest payout structure, tax payable and access to funds. Comparing a five-year FD rate directly with a PPF rate for one quarter does not show the final after-tax outcome over 15 years.

How is FD interest calculated?

FD interest depends on the principal, applicable rate, tenure, compounding or payout method and the provider’s terms.

For a simple illustration, a deposit of Rs.1,00,000 at 7% per annum for one year would earn Rs.7,000 if interest were calculated on a simple annual basis and paid at the end of the year. The actual amount can differ where the FD uses compounding, periodic payouts or another calculation method.

A cumulative FD generally allows interest to accumulate until maturity. A non-cumulative FD pays interest at the selected intervals, so the interest may not be reinvested in the deposit.

Use a fixed deposit calculator to estimate returns using the available product terms.

How is PPF interest calculated?

PPF interest is calculated under the scheme rules based on the eligible balance during the relevant period. Interest is credited annually, and the rate is notified by the government.

The timing of contributions can affect the interest earned. Under the scheme’s calculation method, the balance between the 5th day and the end of the month is relevant to monthly interest calculations. Contributions made earlier in a month may therefore earn more interest than otherwise identical contributions made later, subject to the scheme rules.

Because the PPF rate can change between quarters, a long-term maturity estimate should not assume that today’s rate will remain unchanged for the entire 15-year period.

Tax treatment is an important difference between the two options.

Tax treatment of an FD

Interest earned on a regular FD is generally taxable under the applicable income-tax rules. It is usually included in taxable income, and tax deducted at source (TDS) may apply where the relevant conditions are met.

A qualifying five-year tax-saving FD may allow an eligible deduction for the investment under the applicable tax law and tax regime. Such deposits generally have a five-year lock-in and do not offer the same premature-withdrawal flexibility as many ordinary FDs.

A tax-saving FD should not be confused with every FD. The deduction depends on the product meeting the relevant requirements and on the taxpayer being eligible to claim it.

Tax treatment of PPF

PPF is generally treated as a tax-favoured savings scheme: eligible contributions may qualify for a deduction under the applicable rules, and interest and maturity proceeds receive favourable tax treatment under the current framework.

However, the availability of a deduction depends on the tax regime and the law applicable to the relevant tax year. Under the new tax regime, many deductions available under the old regime cannot be claimed. Verify the current rules with the Income Tax Department before making a tax-based decision.

The tax treatment of PPF and an FD should be compared using the same assumptions about tax regime, income, investment amount and holding period.

Liquidity means how easily you can access your money when you need it.

FD liquidity

Many FDs allow premature closure, but restrictions and interest adjustments vary by provider and product. Closing an FD early may reduce the interest payable, and some products may restrict premature withdrawal during an initial period.

Bajaj Finance has specific premature-withdrawal conditions for its company deposits. Review the official FD terms before booking a deposit or relying on early access.

PPF liquidity

PPF has a longer commitment period. Partial withdrawals are generally permitted from the seventh financial year onwards, subject to the scheme’s eligibility and calculation rules. A loan facility is also available only during a specified period.

PPF should therefore not be treated as an account from which the entire balance can be withdrawn whenever required.

If you expect to need the full amount within a few years, compare an FD with a suitable tenure against PPF’s withdrawal restrictions before deciding.

Both options are commonly used for savings, but their structures are different.

FD risk and deposit protection

An FD’s risk depends partly on the institution accepting the deposit. Bank deposits that qualify for DICGC insurance are covered up to Rs.5 lakh per depositor per bank, including principal and interest, aggregated across eligible accounts held in the same right and capacity.

This cover does not apply to deposits accepted by NBFCs, including company fixed deposits. An NBFC’s credit rating can provide information about its assessed creditworthiness, but it is not deposit insurance or a guarantee that repayment cannot be delayed or defaulted on.

Bajaj Finance FD is a company deposit, not a bank deposit insured by DICGC. Its published credit ratings and terms should be reviewed alongside the risks of an NBFC deposit.

PPF risk and government backing

PPF is a government small-savings scheme operating under prescribed scheme rules. Its interest rate is set through government notifications and may change over time, but the account is not exposed to daily stock-market price movements.

The scheme’s government backing does not remove its liquidity restrictions. A saver should still consider the long tenure and rules governing withdrawals.

The more suitable option depends on when you need the money and what you want the investment to do.

These are comparison points, not personalised financial advice. Before committing funds, keep an emergency reserve separate from investments with withdrawal restrictions.

A fixed deposit and PPF serve different savings needs. An FD may be suitable when you want to invest a lump sum for a defined period, choose a specific interest payout and know the rate applicable to the booked tenure. PPF may suit long-term saving where the 15-year initial tenure and withdrawal restrictions fit the goal.

Compare the after-tax return, tenure, access to funds and the protection that applies to the institution or scheme. Check current FD rates and government-notified PPF rates before deciding, and avoid choosing solely on the basis of the highest advertised rate.