The Interest Bearing Balance (IBB) Method for Calculating the Interest Payable On Your PPF Account

by Vinaya HS on May 27, 2011

in Finance

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The content for this post was provided by reader Ajay who proactively noticed a mistake in the interest credited into his Public Provident Fund (PPF) account, diligently followed-up the matter, and got it corrected. Each of us needs to keep a vigilant eye on our personal finances because no one cares about your money more than you do. Ajay’s experience is a timely reminder.

I checked the interest credited by the Post Office into my Public Provident Fund account for Financial Year 2009-2010 and found that it was less than what I had expected. The Post Office gave a weird reason for this discrepancy. They said that since I got my account transferred from one Post Office to another midway into the Financial Year, the computer calculated the interest for only half the year. They asked me to give them a written complaint and they corrected the mistake in about four weeks time.

I then searched on the Internet but did not find a PPF calculator that handled multiple deposits in a year and with different deposit amounts. After some research, I found that the Post Office uses the Interest Bearing Balance (IBB) method to calculate the interest.

There are some simple rules that we need to keep in mind when calculating the interest for PPF accounts:

  • Interest is calculated based on the Interest Bearing Balance method.

  • You have to deposit the amount on or before the 5th of a month.

Note: I have not done any withdrawals or taken loans on my PPF account. I am not sure how that gets calculated. For this example let’s just have deposits only and no withdrawals/loans.

The Interest Bearing Balance method is something that we learned in school and since we don’t apply it much for any manual calculations in day-to-day life this just remained in the textbooks!

The method is quite simple:

  • Find out the highest balance between the 1st and the 5th of a month. This will be the Interest Bearing Balance for that month.

  • Do the same for all the months in the year and add them up. Let’s call this result as Total IBB.

  • Use the formula Interest = Total IBB x 1/12 x Rate/100 where Rate is 8 (at present; may change in future).

That’s pretty much there is to it. I was working on a spreadsheet for this calculation, but put in the back seat due to other priorities.

Thanks Ajay for the valuable information. Let me see if I can cook-up a calculator.

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{ 11 comments… read them below or add one }

Anonymous May 29, 2011 at 7:46 PM

Hi Vinaya,
Very Useful information.
I should also check and calculate the interest received for my PPF account.

Rohit Garg August 25, 2011 at 2:21 PM

Hi Vinaya

Thanks a lot for this very useful piece of information. I verified my interest credited and it matched accurately.

Thanks again,

Rohit Garg November 30, 2011 at 5:24 PM

Hi Vinaya

Now, as the Interest Rates have been increased from the existing 8% to 8.6% and the interest is compounded annually, so, just the rate of interest in the formula above should be made 8.6 or there is any special change to be made for the interest to be calculated for this year, as the new interest rates would be applicable from 1 dec 2011 onwards (in mid of a year)..

Vinaya H S December 1, 2011 at 7:11 AM

@Rohit Garg:

Good question. Have been meaning to look-up this information myself. Will update soon on my findings.

Rohit Garg December 5, 2011 at 5:00 PM

Hi Vinaya

I have prepared a calculator based on the IBB Method, let me know, if that can be incorporated somewhere on your blog, so that it can help others as well :)

Vinaya H S December 6, 2011 at 2:22 PM


I’d be delighted to. :-)

Have emailed you separately for the same.

Rohit Garg December 6, 2011 at 3:57 PM

Sent u :)

Nilamani Bhol April 19, 2013 at 8:16 PM

my pf a/c no

RAJU May 5, 2013 at 3:11 PM

Hi Vijaya,

I opened PPF a/c in June 2012. Per month I deposited Rs. 1000/-, my balance was Rs. 10000/- on March 2013. End of the financial year March 2013 bank given me interest Rs. 459/-. I regularly deposited before 5th of the every month. The interest rate I assume 8% even then I fill the bank given me lower interest on amount on deposit. me the above matter.

?????? August 21, 2013 at 6:29 AM

????? ???

Gopal Bathija August 23, 2013 at 3:57 PM


My PPF account has gone through a five year extension ( after completing the first 15 yrs. ). The 5 yr. extension period has completed on 31.3.2013.

I plan to withdraw my entire PPF Balance during the course of the current financial year 2013-14.

I have a couple of questions regarding withdrawal from the PPF A/c.

1. May I withdraw the money in my PPF A/c. in instalments?

2. If “Yes” to Question #1. Are there any restrictions to the same?

Awaiting your prompt reply.



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