How PPF interest is actually calculated

PPF interest is calculated every month on the lowest balance in your account between the 5th and the last day of that month, then credited once a year on 31 March. That single rule costs more savers money than any other detail of the scheme, because it means the date you deposit matters as much as the amount.

Deposit ₹1,50,000 on 4 April and the full amount earns interest for all twelve months of the financial year. Deposit the same ₹1,50,000 on 6 April and it earns nothing for April — the lowest balance between the 5th and the 30th was still zero. At 7.1% that one-day slip costs about ₹887 in the first year, and because PPF compounds, closer to ₹2,400 by the end of a 15-year term.

The practical rule: if you deposit yearly, do it before 5 April. If you deposit monthly, do it before the 5th of each month.

Interest accrues monthly but is not credited until 31 March, so a mid-year balance check will not show it. The calculator above credits interest annually for the same reason.

PPF interest rate history: from 12% to 7.1%

PPF has been running since 1968-69, when it paid 4.8%. Rates climbed through the 1970s and 80s to a peak of 12%, held from 1986-87 all the way to 1998-99 — thirteen unbroken years at double digits, the longest and highest run in the scheme’s history.

The fall since has been steady rather than sudden. 12% became 11% in January 2000, 9.5% in 2001, 9% in 2002, then 8% from March 2003 — a rate that then held for more than eight years. The quarterly revision system introduced in 2016 made changes more frequent but smaller, and PPF drifted from 8.1% down to the current 7.1%.

Looking at the last 30 years, PPF has averaged well above where it sits today. Over the last 10 it has been in a narrow 7.1% to 8.1% band. The rate has now been unchanged at 7.1% since April 2020, across more than twenty consecutive quarterly reviews — the longest flat period the scheme has seen.

The chart and full table above show every one of the 29 revisions on record.

What happens after 15 years

A PPF account matures 15 years after the end of the financial year in which it was opened — so an account opened in June 2011 matured on 1 April 2027, not June 2026. That off-by-one catches people out.

At maturity you have three options:

  • Withdraw the whole balance. Tax-free, no conditions.
  • Extend for five years and keep depositing. You must submit the extension form within one year of maturity. Miss that window and you cannot contribute again — deposits made after it are treated as irregular and earn no interest.
  • Extend for five years without depositing. This happens by default if you do nothing. The balance keeps earning the prevailing rate, and you can withdraw any amount once a year.

Extensions can be repeated indefinitely in five-year blocks. An account extended without contributions is the closest thing in Indian personal finance to a tax-free bond you can dip into once a year.

Loans and withdrawals before maturity

PPF is a 15-year commitment, but it is not fully locked.

Loan against your balance is available from the third financial year to the sixth. You can borrow against a portion of the balance from two years earlier, and the interest charged is a small margin above the PPF rate itself. Repay within the stated period and the account continues normally.

Partial withdrawal becomes available from the seventh financial year, once a year, against a share of an earlier year’s balance. Unlike the loan, it does not have to be repaid.

Premature closure is permitted after five complete financial years, but only for specific reasons — serious illness of the account holder or a dependant, higher education, or a change to NRI status. It carries an interest penalty applied across the life of the account.

Confirm the current limits and conditions with your bank or post office before relying on any of these — the rules have been revised more than once, most substantially in 2019.

Where to open a PPF account: post office or bank

The PPF interest rate is identical everywhere. It is set by the Ministry of Finance, not by the institution holding your account, so SBI, HDFC, ICICI, Axis and every post office pay exactly the same 7.1%. Anyone advertising a “better PPF rate” is describing something that cannot exist.

What differs is service. Banks generally offer online deposits, standing instructions and a statement inside your net banking, which matters if you are depositing monthly and need the transfer to land before the 5th. Post office accounts have historically been more manual, though this has improved.

Accounts can be transferred between institutions without breaking the tenure, so an account opened at a post office can move to a bank later without resetting the 15-year clock.

PPF and tax

PPF carries EEE treatment — exempt at all three stages. The deposit qualifies for deduction, the interest is not taxed as it accrues, and the maturity amount is not taxed on withdrawal. Very few Indian instruments do all three.

There is an important caveat. The deduction is available only under the old tax regime. If you have moved to the new regime, your PPF deposit gets no deduction — though the interest and maturity remain tax-free, which is still a meaningful advantage over a fixed deposit taxed at slab rates.

That changes the comparison. Under the old regime, PPF’s 7.1% is effectively worth far more than the headline once the deduction is counted. Under the new regime, compare 7.1% tax-free against a bank FD’s post-tax return: at the 30% slab, a 7.5% FD returns roughly 5.2% after tax, so PPF still wins comfortably.

Is PPF still worth it at 7.1%?

It depends entirely on what you are comparing it to and which tax regime you are on.

Against other government-backed options, PPF is not the highest payer — Sukanya Samriddhi and the Senior Citizens’ Savings Scheme both pay 8.2%, and NSC pays 7.7%. But SSY and SCSS have eligibility conditions most savers cannot meet, and NSC’s interest is taxable. On an after-tax basis PPF is usually ahead of all of them.

Against equity, PPF is not a competitor and should not be treated as one. Its role is the fixed-income, capital-protected part of a portfolio, where the 15-year lock-in is a feature rather than a cost — it is very difficult to panic-sell a PPF account.

The honest limitation is inflation. At 7.1%, PPF is beating headline inflation by a modest margin. It preserves purchasing power with a small real gain; it does not build wealth quickly. Used as the safe portion of a longer plan, that is exactly what it is for.

To compare PPF against every other government scheme side by side, see our small savings interest rates page.