There are times when you don't want to invest lump sum but in instalments & wish to get attractive interest rate with safety of your investible funds. On such occasions, bank RD as well as PPF can be among your various choices.
Bank RDs are offered by public sector banks, private sector banks, co-operative banks, foreign banks, regional rural banks etc. Here, you are required to invest in regular instalments which are pre-decided by you. Multiple tenure having different interest rates are there with the banks which you can opt for according to your need.
PPF gives you option to either invest in instalment or in lump sum. It is very flexible instrument where no compulsion is there. You can choose the amount of investment and when to invest as per your convenience. The only thing to remember here is that the minimum amount of investment per year is Rs 500/- and maximum is Rs 150000/- per annum. You will get tax rebate too on your investment.
Listed below in the table are all the differences between Bank RD and PPF:
| Basis of Difference | Bank Recurring Deposit (RD) | Public Provident Fund (PPF) | |
|---|---|---|---|
| Objective | To induce a habit of regular saving | Vs | To avail tax rebate under sec 80C of Income Tax on deposits with guaranteed returns on investment |
| Meaning | An account in which the investor needs to deposit the pre-specified amount at periodical intervals for a long term | Vs | A long-term saving instrument established by the central government which generates tax-free maturity to provide the old-age income security |
| Investible amount | In instalments- usually monthly instalments | Vs | Investments in smaller and unequal units or in lump sum can be deposited to PPF account |
| Maximum Investment Amount | no such limit | Vs | Rs 150,000 per year |
| Interest Rates | Varies from bank to bank- dependent upon tenure | Vs | Fixed- presently 8.1% p.a. |
| Interest Rates Compounding | Quarterly | Vs | Annually |
| Interest earned is taxable | Yes, as per investor's income tax slab | Vs | No |
| Liquidity | Yes | Vs | No |
| Tenure | 6 months to 10 years | Vs | 15 Years, can further be extended in multiples of 5 years |
| Income Tax Rebate u/s 80C | No | Vs | Yes, upto Rs 1,50,000/- p.a. |
| Maturity | Taxable | Vs | Tax Free |
| Premature Withdrawals | Entire amount, anytime but after charging a certain penalty , banks generally charge 1% as penalty. Partial withdrawals are not allowed | Vs | Can be withdrawn from 7th financial year onwards from the opening of the account and only one partial withdrawal is allowed every financial year |
| Loans | Loan facility available upto 90% of the deposit value in the RD where the RD needs to be pledged as collateral and the interest rate to such loan is around 0.5% to 2% higher than the fixed deposit rate | Vs | Loan availibility from third year onwards |
| Tax Deduction at Source | Yes, at the rate of 10% on interest earned, if it exceeds Rs. 10,000 in one financial year. To avoid TDS, investor can submit Form 15G (for age below 60)/ Form 15H (for age above 60). | Vs | No |
| Risk | Risky compared to PPF | Vs | Safest Investment |
| Periodic income | No | Vs | No |