The PPF Rule That Costs Latecomers Thousands
Two accounts, identical deposits, identical rate — and one ends up materially poorer because of which day of the month the money arrived.
The 5th of the month rule
PPF interest each month is calculated on the lowest balance between the close of the 5th and the last day of that month. Deposit on the 4th and the money earns for the full month. Deposit on the 6th and it earns nothing until the following month.
One month of lost interest sounds trivial. Repeated for fifteen years on a maximum contribution, and with the forgone interest itself never compounding, it becomes a real number — the calculator quantifies it above.
Interest is earned on the lowest balance between the 5th and the end of each month, so a deposit made by the 5th earns for that month and one made after it does not. A lump sum deposited by 5 April therefore earns for all twelve months of the financial year, while spreading contributions aligns deposits with available cash; compare the patterns above.
Monthly interest basis
Interest = min(balance from 5th to month end) × rate ÷ 12
- A deposit after the 5th does not raise the minimum for that month
- Interest is credited once, at the end of the financial year
Lump sum versus spreading contributions
Depositing a lump sum earlier lets more of the balance earn interest for longer. Spreading contributions can align with cash flow but means later deposits earn for less time; the calculator above compares the modeled outcomes.
A lump sum uses more cash upfront and may earn for longer, while periodic contributions preserve cash until each deposit. Switch the pattern above and compare the modeled effect.
Loans and partial withdrawals
PPF locks money up for fifteen years, but not absolutely. From year 3 to year 6 you may borrow up to 25% of the balance at the end of the second preceding year, repayable with interest. From year 7 partial withdrawals are permitted, limited to 50% of the balance at the end of the fourth preceding year.
The ledger above shows the applicable limits over time. Access to some funds may offer flexibility, while the scheme's restrictions and long lock-in reduce liquidity; compare those features with your emergency cash needs.
Why the tax status matters more than the rate
Under Indian tax rules, PPF is EEE: contributions are deductible under Section 80C in the old tax regime, interest accrues tax-free, and maturity proceeds are tax-free.
In India, tax treatment can affect how PPF compares with taxable deposits. The relative outcome depends on current rules, eligibility, and each account's rate and terms.