FD, RD or PPF — where should your savings go?

Quick definitions

• FD (Fixed Deposit): a single lump sum locked for a chosen term at a fixed rate.
• RD (Recurring Deposit): a fixed amount deposited every month for a set term, again at a fixed rate.
• PPF (Public Provident Fund): a 15-year government savings scheme with a rate set quarterly and compounded annually.

Returns and compounding

FD and RD rates are set by banks and tend to track the rate cycle. PPF is set by the government and has historically been competitive, with the bonus that interest compounds annually and stays in a tax-free environment. RD returns look lower than an FD of the same rate only because your money is invested gradually rather than all at once.

The big differentiator: tax

This is where they diverge most.

• FD & RD interest is fully taxable at your slab rate, and banks deduct TDS once interest crosses the threshold.
• PPF enjoys EEE status — contributions can qualify under 80C, and both the interest and the maturity amount are tax-free.

For a taxpayer in a high slab, PPF's tax-free return can comfortably beat an FD with a higher headline rate.

Liquidity and lock-in

FDs are the most flexible — you can break one (with a small penalty) whenever you need cash. RDs run for their chosen term. PPF locks money for 15 years, with only limited partial withdrawals allowed from year 7, so it is for long-term goals, not emergencies.

A simple framework

• Need the money within a year or two → FD.
• Building a habit from monthly income → RD.
• Long-term, tax-free, retirement-style savings → PPF.

Most households use all three for different jobs. Run your own amounts through the calculators to see the maturity value and, for FD/RD, the interest you'll be taxed on.