From April 2016, interest rates on Public Provident Fund or PPF and other small savings instruments are notified on a quarterly basis. For the latest October to December quarter, it is fixed at 7.9%. The interest on PPF is compounded annually. But what is important to note is that the interest on your PPF account is calculated on a monthly basis but credited to your account on 31st March every year. PPF accounts have a maturity period of 15 years.

How is PPF interest calculated on a monthly basis

1) Interest is calculated on the minimum balance in PPF account between 5th and the end of each month.

2) This means if fresh deposits are made before 5th of each month, you get the interest for that month on that deposit. Otherwise, interest is calculated on the previous balance.

3) So to maximise interest, a PPF subscriber should deposit contributions or lump sums before the 5th of each month. The minimum amount that has to be deposited in a PPF account each year is 500 while the maximum limit is that of 1.5 lakh.

Also note that if a guardian or parent has opened a PPF account in a child's name in the capacity of guardian of the minor, the maximum amount that can be deposited in the guardian’s account including child’s account is 1.5 lakh per year.

Another point to be noted is that deposits in a PPF account can be made in lump sum or in a maximum of 12 installments per year.

4) Ideally, if you have the fund, you should deposit 1.5 lakh in lump sum by 5th of April. This will help you earn interest for your one-time deposit for the entire year.

5) Let us see through an example how much you benefit if you deposit the money in your PPF account before the 5th of the month. For example, the balance in your PPF account before in the previous financial year was 1 lakh. You deposited 50,000 before 5th of April, So the lowest monthly balance (5th April to 30th April) was 1,50,000. So for the month of April you will get an interest of 988. (See Chart - 1)

PPF balance before financial year - 1 lakh

Month Contribution Deposited on Lowest Monthly Balance (5th to end of month) Interest rate Monthly interest
Apr 50000 Before 5th 150000 7.9 988
May 0 150000 7.9 988
June 0 150000 7.9 988
July 0 150000 7.9 988
Aug 0 150000 7.9 988
Sep 0 150000 7.9 988
Oct 0 150000 7.9 988
Nov 0 150000 7.9 988
Dec 0 150000 7.9 988
Jan 0 150000 7.9 988
Feb 0 150000 7.9 988
March 0 150000 7.9 988
11856

On the other hand, if you had deposited 50,000 after 5th of April, you would not have got interest on the fresh contribution of that month. The lowest monthly balance (5th April to end of April) was 1,00,000. So the monthly interest would be 658. If you had deposited the amounted by 5th of April, you would have earned 988. (See Chart - 1)

PPF balance before financial year - 1 lakh

Month Contribution Deposited on Lowest Monthly Balance (5th to end of month) Interest rate Monthly interest
Apr 50000 After 5th 100000 7.9 658
May 0 150000 7.9 988
June 0 150000 7.9 988
July 0 150000 7.9 988
Aug 0 150000 7.9 988
Sep 0 150000 7.9 988
Oct 0 150000 7.9 988
Nov 0 150000 7.9 988
Dec 0 150000 7.9 988
Jan 0 150000 7.9 988
Feb 0 150000 7.9 988
March 0 150000 7.9 988
11526

Here are some other facts about PPF account:

PPF accounts can be extended for blocks of five years each.

The government allows premature closure of PPF accounts after five years but only under under special situations.

Partial withdrawals, which are allowed once every year from seventh financial year, are also tax free.

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