PPF Interest Rate: Public Provident Fund or PPF is a very popular investment option especially for individuals looking for tax free returns with sovereign guarantee. PPF interest is tax-exempt, making timely deposits crucial for maximizing tax-free earnings. The maximum annual investment allowed in a PPF account is Rs 1.5 lakh.
But did you know that the timing of your PPF deposit can have an impact on the interest rate you earn from it, especially if you prefer making a lump sum investment in PPF? Let’s understand this better:
Investors in Public Provident Fund (PPF) accounts for the fiscal year 2024-25 should ideally ensure that their investments are credited before April 5 to optimize interest earnings.
As per the PPF scheme, interest is computed based on the lowest balance between the 5th and the end of each month. Therefore, for those opting for lump-sum payments for the entire fiscal year, depositing before April 5 is crucial to maximize returns. Any delay could lead to the loss of a month’s interest on the annual deposit, particularly impacting those making single annual bulk deposits, states an ET report.
Similarly, individuals making monthly contributions should ensure payments are made on or before the 5th of each month to prevent any loss of interest.
Let’s look at an example; if a deposit is made on April 15, interest calculation will consider the balance before this deposit for the month of April, resulting in no interest on the additional April contribution. Conversely, deposits made on or before April 5 will earn interest for April, enhancing the overall PPF returns.
Also Read | Penal charge, interest on your loan? New RBI rules from April 1 – what borrowers should know
But did you know that the timing of your PPF deposit can have an impact on the interest rate you earn from it, especially if you prefer making a lump sum investment in PPF? Let’s understand this better:
Investors in Public Provident Fund (PPF) accounts for the fiscal year 2024-25 should ideally ensure that their investments are credited before April 5 to optimize interest earnings.
As per the PPF scheme, interest is computed based on the lowest balance between the 5th and the end of each month. Therefore, for those opting for lump-sum payments for the entire fiscal year, depositing before April 5 is crucial to maximize returns. Any delay could lead to the loss of a month’s interest on the annual deposit, particularly impacting those making single annual bulk deposits, states an ET report.
Similarly, individuals making monthly contributions should ensure payments are made on or before the 5th of each month to prevent any loss of interest.
Let’s look at an example; if a deposit is made on April 15, interest calculation will consider the balance before this deposit for the month of April, resulting in no interest on the additional April contribution. Conversely, deposits made on or before April 5 will earn interest for April, enhancing the overall PPF returns.
Also Read | Penal charge, interest on your loan? New RBI rules from April 1 – what borrowers should know
PPF Calculator: How To Not Lose Lakhs In Interest
Interest in a PPF account is calculated monthly but credited annually, with the government reviewing rates quarterly.
- Let’s assume a constant interest rate of 7.1% per annum for 15 years. An individual depositing Rs 1.5 lakh annually (maximum limit) before April 5 would earn Rs 18.18 lakh in interest over a 15 year period. In contrast, depositing after April 5 would yield only Rs 15.84 lakh, resulting in a loss of Rs 2.69 lakh over 15 years.
- Similarly, for monthly payments of Rs 12,500 (Rs 1.5 lakh over a year) made before the 5th of each month, the total interest over 15 years would be Rs 16.94 lakh. Making deposits after the 5th of the month would reduce interest earnings to Rs 16.70 lakh, resulting in a loss of Rs 24,005 over the period.