Simple vs Compound Interest
Simple interest is calculated only on the original principal: SI = P × R × T ÷ 100. Compound interest earns interest on accumulated interest: A = P × (1 + R/n)^(nT). Over long periods, the difference is dramatic — ₹1 lakh at 7.1% for 15 years gives ₹2,06,500 with compounding vs ₹2,06,500 with simple (these match because compounding is once per year here; for quarterly compounding the gap widens).
Popular Government Investment Schemes
PPF (Public Provident Fund): 7.1% p.a., 15-year lock-in, ₹1.5L yearly cap, EEE tax status. GPF (General Provident Fund): 7.1% p.a., for central govt employees only, mandatory 6% basic deduction. SSY (Sukanya Samriddhi Yojana): 8.2% p.a., girl-child savings scheme. NSC (National Savings Certificate): 7.7% p.a., 5-year lock-in. SCSS (Senior Citizens Savings Scheme): 8.2% p.a., for 60+ age. All revised quarterly.
Bank FD Rates (2026)
Public sector banks (SBI, PNB, Canara, BoB): 6.5–7.25% for 1–5 years. Private banks (HDFC, ICICI, Axis): 6.5–7.5%. Small finance banks (AU, Equitas, Suryoday): 7.5–8.5%. Senior citizens get an extra 0.25–0.5%. For tax-saving FD (5-year lock-in), claim deduction under Section 80C up to ₹1.5L. Use the EMI Calculator if you're comparing FD returns against loan EMI cost.
Frequently Asked Questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the principal: SI = P × R × T / 100. Compound interest is calculated on principal plus accumulated interest: A = P × (1 + R/n)^(nT). Over long periods, compound interest produces dramatically higher returns. Most modern instruments — PPF, FD, mutual funds, savings accounts — use compounding.
What is the current PPF interest rate?
PPF (Public Provident Fund) interest rate is 7.1% per annum (revised quarterly by Government of India). Interest is compounded annually. Maximum yearly contribution: ₹1.5 lakh. Lock-in period: 15 years. Both contribution and maturity are tax-free under Section 80C (EEE category).
What is GPF interest rate for government employees?
GPF (General Provident Fund) rate is 7.1% per annum, same as PPF. Only Central Government employees (joined before 2004) and some autonomous body employees can subscribe. Minimum 6% of basic pay deducted monthly. Withdrawal allowed for specific purposes; full settlement on retirement. Interest is tax-free.
How is Bank FD interest taxed?
Bank FD interest is fully taxable as "Income from Other Sources" at your slab rate. Banks deduct TDS at 10% if annual interest exceeds ₹40,000 (₹50,000 for senior citizens). Form 15G/15H can be submitted to avoid TDS if total income is below the taxable limit. Tax-saving FD (5-year lock-in) qualifies for 80C deduction.
Should I invest in PPF or SSY?
PPF (7.1%) is open to all citizens, ₹1.5L annual limit, 15-year lock-in. SSY (Sukanya Samriddhi Yojana, 8.2%) is only for parents of a girl child below age 10, also ₹1.5L annual limit, matures when girl turns 21. SSY rate is higher and is the better choice if you have an eligible daughter; otherwise PPF.