FD vs PPF for a 15-Year Goal: Worked Comparison After Tax

The question behind "FD or PPF?"

If you are saving for something about 15 years away, such as a child's education, a house down payment or the early part of your retirement fund, a fixed deposit and a Public Provident Fund account look like similar choices. Both are low-risk and both pay a stated rate of interest. The difference that decides the outcome is not the headline rate but how much of the interest you keep after tax, and how much freedom you give up to get it.

This article puts both options through the same test using the same yearly deposit, so you can see the gap in rupees rather than guess at it. The figures use ToolHive's PPF calculator and FD calculator logic. Rates are assumptions you can replace with current ones.

The ground rules we are comparing

PPF: a government-backed scheme with a 15-year term. The maximum deposit is Rs. 1,50,000 per financial year. The interest rate is set by the government and reviewed every quarter; it has been 7.1% for several years, but check the current notified rate before you decide. Interest and the maturity amount are tax-free.
Bank FD: you lock money for a term you choose and earn the bank's rate for that term. Interest is added to your income and taxed at your slab rate, and banks may deduct TDS. There is no deposit cap.
Our test: Rs. 1,50,000 deposited at the start of each year for 15 years, so total deposits are Rs. 22,50,000. For the FD we assume 7% a year, compounded yearly, and for PPF 7.1%.

What 15 years of deposits become

Option	Effective yearly rate after tax	Value after 15 years
PPF at 7.1% (tax-free)	7.10%	Rs. 40,68,209
FD at 7%, no tax considered	7.00%	Rs. 40,33,208
FD at 7%, taxpayer in the 20.8% bracket (20% slab plus cess)	5.54%	Rs. 35,59,493
FD at 7%, taxpayer in the 31.2% bracket (30% slab plus cess)	4.82%	Rs. 33,46,061

The first two rows show that, before tax, the two options are almost the same: the PPF rate is just 0.1 percentage point higher. The gap opens up when tax is applied. For someone in the 30% bracket, the FD ends roughly Rs. 7.2 lakh behind PPF on the same deposits. For someone whose income is low enough that FD interest is not taxed, the difference nearly disappears.

The after-tax FD rows are approximations: they apply the tax rate to the interest each year and assume the same rate is available for every deposit. Real life is messier, because FD rates change and each deposit is taxed in its own year. Treat the table as a fair comparison of magnitude, not a prediction.

What FD rate would match PPF?

A useful way to compare is to ask what pre-tax FD rate gives the same after-tax return as PPF's 7.1%. Dividing 7.1% by (1 minus your tax rate) gives the answer:

At a 20.8% effective tax rate, an FD would need to pay about 8.96%.
At a 31.2% effective tax rate, an FD would need to pay about 10.32%.

Ordinary bank FDs rarely pay that much, which is why PPF tends to win for higher-bracket taxpayers who can use it. For a taxpayer who pays no tax at all, an FD at the same rate is a fair match.

Where the FD wins

Flexibility. You choose the term, from a few months to several years, and you can break an FD early (usually with a small penalty). A PPF account is locked for 15 years, with partial withdrawals allowed only from the seventh year and loans in the early years under conditions set by the scheme.
No yearly cap. If you have more than Rs. 1.5 lakh to put away, the extra can only go to FDs or other instruments.
Fixed rate for the term. A cumulative FD locks the rate for its whole term. PPF's rate can change every quarter, up or down, so 7.1% is not guaranteed for 15 years.
Short horizons. For goals under five years, PPF is not an option in practice.

Where PPF wins

Tax-free growth. This is the main advantage and it grows with your tax bracket.
Sovereign backing. The scheme is run by the government of India.
Section 80C. Under the old tax regime, deposits up to Rs. 1.5 lakh count toward the section 80C deduction. Under the new regime that deduction does not exist, so the tax saving on the deposit itself is gone, though the tax-free interest remains. If you have chosen the new regime, compare the two options on interest alone. Our income tax calculator covers the new regime.
Discipline. The lock-in stops you from dipping into the money, which is a feature for long-term goals.

What our calculators leave out

The FD calculator compounds interest once a year. Many banks compound cumulative FDs quarterly, which gives a slightly higher maturity amount, about Rs. 1,200 more on Rs. 1 lakh at 7% over 5 years. It also handles a single deposit, so the yearly-deposit series above was built by repeating the same formula.
The PPF calculator assumes each deposit is made at the start of the year at a fixed rate. Real PPF interest is worked out on the lowest balance between the 5th and the end of each month, so money deposited after the 5th earns less for that month.
Neither tool models inflation. At 5% inflation, a 15-year balance of Rs. 40 lakh buys roughly what Rs. 19 lakh buys today, which is why many people add equity funds for goals this long. See the SIP calculator for that comparison, keeping in mind that market returns are not guaranteed.

A simple way to decide

Will you need the money before 15 years? If yes, use FDs, or a mix, since PPF will not be accessible.
Are you in a higher tax bracket? If yes, fill the PPF limit first because the tax-free return is hard for an FD to beat.
Have you used the Rs. 1.5 lakh yearly limit? Put the rest in whatever suits the time horizon, including FDs.
Do you want more growth than either offers? That is a risk decision, and the answer may include market-linked investments.

This is general information, not investment advice. Rates, tax rules and scheme conditions change, so confirm current details on your bank's website, the post office or the Income Tax Department before committing money. To test your own numbers, change the deposit, rate and term in the PPF and FD calculators.