Rate of Interest
How Is PPF Interest Calculated? Here Is Everything You Must Know
As per the Public Provident Fund (PPF) rules, the interest on the PPF balance is calculated monthly and is credited to an individual's account at the end of the financial year on 31st March. However, the interest calculation follows the annual compounding method. Isn’t it a bit confusing?
Well, not anymore! Read the following section to get a clear understanding of the PPF interest rate, its calculation process and everything related to it.
PPF Calculator - An Online Financial Tool
As stated earlier, the PPF calculation process slightly differs from other savings or investment options and is complicated as well. In such cases, the PPF calculator acts as one of the best ways to calculate PPF interest easily.
PPF calculator is an online tool that helps you to calculate the year-wise return against your contribution to the PPF account for a fixed tenure with a specific frequency. In short, if you are willing to invest in PPF but not sure about the ideal amount of investment or the return it would generate for investing for a certain period, you can use the PPF calculator to get fast results/calculations.
This versatile tool eliminates the need for different bank-wise calculators, such as HDFC PPF calculator, SBI PPF calculator, etc.
Introduced in 1968 by the Finance Ministry’s National Savings Institute, Public Provident Fund (PPF) is one of the most sought long-term savings cum investment products. One of the reasons that makes PPF a popular choice is a substantial return, i.e., accumulated interest amount at the end of every year it guarantees.
How PPF Interest is Calculated?
Those who are wondering how the PPF interest is calculated must know that the PPF interest is calculated on the minimum PPF account balance of an individual deposited between the 5th and last day of every month. With this comes several facts to consider. Such as -
- If you are willing to make a fresh deposit, you need to get it done before the 5th of each month to get interest on that deposit for that month. In cases otherwise, the interest will be calculated on the previous balance, and the new deposit will not be considered.
- Therefore, to increase the interest, individuals need to deposit contributions or lump sum amounts prior 5th of each month.
- PPF subscribers can deposit a minimum amount of ₹500 in the PPF account, and the upper limit goes as far as ₹1.5 lakhs.
Note: The deposit in a PPF account in a lump sum can be made in a maximum of 12 installments each year.
- Therefore, if you have the maximum limit of the PPF account, you should deposit it by 5th April. It will facilitate you to generate interest for the one-time deposit for the whole year. An example will further help you to understand this clearly.
For instance, in the previous financial year, you had a balance of ₹1 lakh in your PPF account. You made a deposit of ₹50000 before 5th April. Therefore, the minimum/lowest monthly balance (from 5th April-30th April) is ₹150000. Hence, you will get an interest of, let’s say, X (higher) for that month (depending on the PPF interest rate).
Alternatively, if you have deposited ₹50000 after 5th April, then you would not get interest in the new contribution for that month.
Well, because the minimum/lowest interest PPF balance is ₹100000 (5th April to the month-end). In this case, you would get an interest of, let’s say, X (lower) for that month.
In short, if you deposit the amount before 5th April, you would get a higher interest for the fresh deposit. If you deposit the amount after 5th April, you will get a lower interest for the deposit.
PPF Interest Calculation Formula
PPF interest calculation method includes the compound interest calculation formula and the compounding of the PPF principal amount annually, i.e., each year.
Here’s the formula for calculating PPF interest.
Let us decode the variables mentioned in the formula-
A: PPF maturity amount
P: PPF principal amount (invested)
r: PPF interest rate
t: Time period
One thing can be speculated from the above-mentioned formula: the longer the investment period, the higher the interest you can generate on the PPF account. Now that you know how interest is calculated on PPF, you should assess how rates change over time.
PPF Interest Rate and its changing/revising Frequency
Public Provident Fund generates an amount of interest on PPF balance/principal. The current PPF interest rate is 8.15% for the Q3 of the financial year 2023-24. The rate is determined by the Government of India, which remains constant no matter where the PPF account is opened.
The amount is compounded annually, which means PPF subscribers can avail a substantial amount every year in the form of compound interest.
In the previous year, the PPF interest rates fluctuated and witnessed a sharp decline since 2016. Moreover, the payable PPF interest rate is decided yearly according to the requirement.
However, from 2017 onwards, the interest rate has changed and is notified quarterly.
How PPF Calculator Works - Explained
As stated earlier, the PPF interest calculator is an online financial tool that offers hassle-free calculation of PPF interest earned on the investment and maturity amount after the lock-in period of 15 years. If you can’t understand how to calculate the PPF interest rate, using this tool is the best option.
To use the PPF interest rate calculator, you need to select the type of deposit (fixed amount or variable) and deposited amount of each year.
To be precise, you need to put data like PPF interest rate, time, and invested principal amount, and it will show you the results.
However, the results will show a table with some new terms, which you must know to understand the results better.
- Opening balance- It refers to the PPF account balance at the beginning of the year.
- The amount deposited- It refers to the PPF account balance after all the deposits have been made throughout the year.
- Interest earned- It points to the interest calculation, which is done based on the PPF account balance at the end of the financial year. PPF account balance is compounded annually.
- Closing balance- It refers to the total amount at the end of the year, which is calculated by summing the interest earned from the existing year to the opening account and all the deposits made throughout the year.
- Loan (Maximum)- PPF subscribers can avail of loans from the 3rd year to the end of the 6th year from the date of account opening. However, after the end of the 6th year, loans on PPF will be unavailable. Individuals can opt for partial withdrawal. The maximum loan offered on PPF is usually 25% of the previous year’s opening balance of the account.
- Withdrawal (Maximum)- PPF subscribers can make a partial withdrawal once a year after the completion of the 6th year and the beginning of the 7th financial year. The online calculator shows the maximum withdrawal amount on the basis of the presumption that no withdrawal was made or loans were availed in the previous year.
Important Facts about PPF Account
- PPF schemes come with a lock-in period of 15 years.
- These accounts can be extended for blocks of five years.
- The government facilitates premature closure of the PPF account after five years under special circumstances.
The above-mentioned segments contain all the necessary information regarding the PPF interest rate. Now that you know how the PPF interest rate is calculated, and the tax benefits on PPF interest, depositing/investing in this savings cum investment instrument will be easier and hassle-free.
So, start looking for the highest PPF interest rate today!
How PPF Interest Rates have changed over the last 3 years?
The table below shows the changes in PPF rate of interest over the last 3 years:
PPF Interest Rate
January -March 2021
October -December 2020