Tips to earn maximum interest from your Public Provident Fund account
The PPF is one of the most popular tax-saving schemes used by investors who are looking to reduce their tax burden. A tax-saving tool, PPF is also an excellent choice for building your retirement corpus, which is evident from the attractive PPF interest rates history.
Before we reveal the tips to maximise your PPF returns, let's take a closer look at how PPF interest rates are calculated.
How is the interest rate calculated?
The PPF interest is not fixed but depends on the current yield of government bonds. The interest is compounded annually – meaning the interest you earn is not distributed but reinvested along with your contribution. The interest your contributions earn is credited at the end of the fiscal year. The key point here is that while the interest is credited into your account annually, the interest is calculated every month. The interest is calculated considering your lowest balance in a month, between the 5th and the last day.
The current PPF interest rate for the fourth quarter of 2018, from Jan 2019 to March 2019 is 8.0%.
How to maximise interest earnings on your PPF account?
Tip #1: Invest before the 5th of every month
If you make monthly contributions to your PPF account, then investing before the 5th of every month will help you earn maximum returns, compared to investors who invest after the 5th , as the interest rates are calculated monthly and compounded to your PPF contributions. Thus, by investing before the interest calculation date for a particular month, you maximise your returns.
Tip #2: Invest lump sum amounts at the beginning of the financial year
Another way to maximise your PPF account interest rate is by investing bulk sum amounts at the beginning of the financial year. PPF account interests are calculated from April to March every year. So, by depositing a large sum before the 5th of April, you can earn interest for your one-time deposit for the entire year.
Tip #3: Open a PPF account with a bank that offers online transfer
PPF is a long-term investment plan and to enjoy maximum benefits, you need to stay invested regularly. If you have no other option, but to visit your bank or post office for cash contributions to your PPF Account, then the chances are high that you would skip instalments regularly.
On the other hand, if your bank offers direct Internet Banking transfer facility to your PPF Account, then you are likely to make regular contributions, thereby improving your chances of maximising returns.
ICICI Bank offers direct fund transfer to PPF Accounts for our bank customers.
Use these smart strategies to maximise PPF returns
Remember that when it comes to interest earned, even a few hundreds earned every month can go a long way in maximising your PPF returns, in the long-term. So, make use of these strategies listed here to maximise the interest you earn.
Use a free, online PPF interest rate calculator
If you need further help on finding the accurate interest your contributions earn, then make sure to use a PPF interest calculator. This is a handy tool that helps you predict the interest rates your contributions will earn. This gives you a clear picture of the returns, helping you tweak the contributions to meet your specific requirements.
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