Interest rates over the last few years have only fallen, but, the country is now staring at an interest rates hike as inflation gradually rises.

At around 7 to 8 per cent, interest rates are no longer what they used to be. This means, you need to make the best and get maximum yields and returns on your debt instrume.

Interest rates over the last few years have only fallen, but, the country is now staring at an interest rates hike as inflation gradually rises.

At around 7 to 8 per cent, interest rates are no longer what they used to be. This means, you need to make the best and get maximum yields and returns on your debt instruments. Here are a 4 reasons why the PPF is better than bank deposits.

1) Superior interest rates

The Public Provident Fund offers superior interest rates than bank deposits. For example, at the moment, State Bank of India can at best offer you an interest rate of 6.75 per cent. However, the Public Provident Fund can offer you an interest rate of 7.6 per cent.

Though, the SBI and PPF could always change interest rates, we believe that even in the longer term, the PPF interest rates would always be higher than those of bank deposits.

2) Interest income is free from tax

Interestingly, the post tax returns of the PPF are far superior to that of bank deposits, on account of the tax free status.

So, while interest earned from bank deposits is fully taxable in the hands of the investors, they are completely tax free in the case of the Public Provident Fund. This can make a big difference to folks, whose income is fully taxable.

3) Sec 80C benefits

Bank deposits do not qualify for Sec 80C tax benefits, while PPF does. A small clarification here is that only of you invest in tax saving deposits of banks, they qualify for the 80C benefit - all other deposits, including recurring deposits do not. Sec80C benefits provides for you a tax rebate of up to Rs 1.5 lakhs per annum.

4) Safety

Bank deposits can provide you safety in the form of insurance safety of Rs 1. lakh only. The Public Provident is much safer. Also, one important thing is that given the tenure of PPF of 15 years, it helps to build a corpus, as against bank deposits, which can easily be withdrawn anytime.

Conclusion: If you are betting on tax benefits, along with safety and superior returns, you need to strongly consider the PPF. However, the only drawback is that you can deposit only a maximum sum of Rs 1.5 lakhs every year. In any case, the advantages of this government guaranteed investment scheme far outweigh the disadvantages. So, go for the same, keeping a long term perspective in mind.