PPF vs FD: Which is Better in 2026?
Both are safe, government-backed instruments - but PPF wins significantly on post-tax returns for anyone in the 20-30% bracket. Here's why.
Last updated: September 2026 · Sources: NSI, RBI, Income Tax Dept
Quick verdict
PPF is better for long-term (15+ year) tax-free wealth building. FD is better for short-term goals (under 5 years), monthly income needs, or if you are in the nil/5% tax bracket (where the tax-free advantage of PPF is reduced).
The tax advantage of PPF
At a 30% tax slab, a 7.1% PPF rate is equivalent to needing a 10.1% pre-tax return from an FD to match it. No FD in India offers 10%.
Post-tax effective return (30% tax bracket)
PPF interest is completely exempt from income tax under Section 10(11).
Full comparison
| Parameter | PPF | FD |
|---|---|---|
| Current rate (2026) | 7.1% p.a. (compounded annually) | 6.5-7.5% p.a. (varies by bank/tenure) |
| Risk | Zero - sovereign guarantee (Govt of India) | Zero - DICGC insured up to ₹5 lakh per bank |
| Tax on interest/returns | Completely tax-free (EEE) | Fully taxable as income at slab rate + TDS 10% |
| Post-tax return @ 30% slab | 7.1% (unchanged - tax-free) | ~4.5-5.3% (after 30% tax on 6.5-7.5%) |
| 80C deduction | Yes - up to ₹1.5L/year (old regime) | Only 5-year tax-saving FD - up to ₹1.5L/year |
| Lock-in period | 15 years (extendable) | 7 days to 10 years (flexible) |
| Premature withdrawal | Partial from year 7; full after 15 years | Any time; 1% penalty on rate |
| Loan facility | Loan against PPF (year 3 to 6) | Loan up to 90% of FD value |
| Monthly income option | No - interest compounds annually | Yes - monthly interest payout FDs available |
| Senior citizen benefit | No extra rate for seniors | +0.25-0.5% extra for senior citizens |
PPF rate is set by the Government of India and may change quarterly. FD rates vary by bank. See our disclaimer.