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PPF account vs special bank deposit schemes (money doubles): Analysis

Deciding between a mouth watering bank deposit schemes and a PPF account is always a tough task. On one hand, you have deposit schemes such as Central Bank of India’s Cent Double scheme and SBH Double that doubles your investment in about 7 and half years. On the other hand, you have PPF account that even though doesn’t offer as exiting interest rates as bank schemes, provide you tax free (both income tax and wealth tax) earnings.

Let’s get this straight, if you put in Rs.70000 every year in to your PPF account (see best time to invest in PPF account), at the end of 15 years, you’ll invest a total of Rs.10.5 lakhs, for which your returns will be Rs.21.23 lakhs. So a PPF account is taking 15 years to approximately double your investment, which is completely tax free.

Now coming to bank schemes that will double your investment in 87 months (7 years 3 months). For example, if you put the same Rs.10.5 lakhs in these schemes, your investment is being doubled in just 7 years and 3 months. But here, you’re required to pay income tax (and wealth tax, if applicable). The banks are required to cut the tax at source as per RBI’s instructions. So what you’ll get after 87 months will be informed by the banks’ before hand, which will be after tax.

Bank deposit schemes may be a winner here, but if you can extend your PPF account by another 2 blocks of 5 years, and invest Rs.70000 every year, you’ll be getting over Rs.55 lakhs at the end of 25 years. Now this will clearly better the above bank schemes after taxation.

Update: Now you can invest up to Rs.1 lakh in PPF account

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