FD vs RD: Which Deposit Is Better for You?
Fixed and recurring deposits pay similar rates but work very differently. See why the same rate gives different maturity values, and how to choose.
Fixed deposits and recurring deposits are the two most popular low-risk savings products in India. Banks often offer them at the same interest rate, so it is easy to assume they give the same result. They do not — and understanding why helps you choose the right one for each goal.
Key takeaways
- An FD invests a lump sum on day one; an RD builds up month by month.
- At the same rate, an FD of ₹1.2 lakh earns more than an RD of ₹10,000 a month for a year, because the money is invested for longer.
- Use an FD when you already have the money, and an RD to build savings from your monthly income.
How they differ
| Fixed deposit (FD) | Recurring deposit (RD) | |
|---|---|---|
| How you invest | One lump sum | Fixed amount every month |
| Interest rate | Fixed for the tenure | Fixed for the tenure |
| Compounding | Usually quarterly | Usually quarterly |
| Best for | Parking money you already have | Building a saving habit |
| Risk | Very low | Very low |
Same rate, different results
Compare ₹1,20,000 placed in an FD with ₹10,000 a month in an RD for a year, both at 7%:
- FD: matures at about ₹1,28,623.
- RD: matures at about ₹1,24,621.
Over 3 years the gap widens: an FD of ₹3,60,000 grows to about ₹4,43,318, while ₹10,000 a month in an RD grows to about ₹4,01,373. The RD is not worse — it simply has less money invested on average, because the last instalment is deposited only in the final month.
The fair question is not “FD or RD?” but “do I have the money now, or will I save it monthly?” If you will save monthly anyway, an RD is the right tool. If you already have a lump sum, an FD puts all of it to work at once.
How RD interest is calculated
Each RD instalment earns quarterly-compounded interest only for the months it stays in the account. The first instalment earns interest for the full tenure; the last earns for just one month. The RD Calculator uses this method, the same one banks use.
Things to compare before you open one
- Rate and tenure: rates vary by tenure; a slightly longer or shorter term can earn more.
- Premature withdrawal: both usually allow it with a lower rate or penalty.
- Missed RD instalments: may attract a small penalty — set up an auto-debit.
- Senior citizen rates: usually 0.25–0.50% higher.
- Tax: interest on both is taxable at your slab rate, and TDS may apply.
- Safety: DICGC insurance covers deposits up to ₹5 lakh per depositor per bank.
Using both together
A practical approach: run an RD for a goal one to three years away (a vacation, a gadget, a down payment), and keep any lump sum — a bonus, maturity proceeds — in an FD. For longer goals, compare deposits with SIPs in our guide SIP vs FD.
Calculate both
Try the FD Calculator and the RD Calculator with your bank’s current rates. The year-by-year tables show exactly how much interest each one earns.
This article is for general information only and is not financial, tax or legal advice. Rates, rules and products change — check current terms with your lender or a qualified adviser. Disclaimer.