Savings
FD vs RD: Which Is Better for You?
Lump sum or monthly saving: the key differences, a 5-year comparison, how interest is worked out, and which to pick.
By Team Vind · Updated · 5 min read
Fixed deposits and recurring deposits are India's most popular safe savings, and both pay a fixed, guaranteed rate. The difference is how you put the money in: all at once in an FD, or a fixed amount every month in an RD. That one difference decides which suits you.
The difference in one table
| Fixed deposit (FD) | Recurring deposit (RD) | |
|---|---|---|
| How you invest | One lump sum | A fixed amount every month |
| Best for | Money you already have | Saving from your salary |
| Interest rate | Same as RD for the same tenure at most banks | Same as FD at most banks |
| Interest earned | Higher: all your money earns for the full term | Lower: each instalment earns only from when it's paid |
| Missed payments | Not applicable | Small penalty; several missed instalments can close the account |
| Early withdrawal | Allowed with a penalty (often 0.5–1%) | Allowed with a penalty |
| Tax | Interest taxed at your slab rate | Interest taxed at your slab rate |
Same money, different results
Compare putting ₹3,00,000 in an FD today with saving ₹5,000 a month in an RD for 5 years, both at 7% compounded quarterly:
| Invested | Maturity | Interest | |
|---|---|---|---|
| FD of ₹3,00,000 | ₹3,00,000 | ₹4,24,433 | ₹1,24,433 |
| RD of ₹5,000/month | ₹3,00,000 | ₹3,59,664 | ₹59,664 |
The FD earns far more interest, but only because the whole amount is invested from day one. If you don't have ₹3,00,000 today, the comparison doesn't apply: the RD is how you build it.
Try it: FD Calculator
Your FD Maturity
- Deposit₹1,00,000(71%)
- Interest₹41,478(29%)
Balance at the end of each year
| Year | Balance | Interest so far |
|---|---|---|
| 1 | ₹1,07,186 | ₹7,186 |
| 2 | ₹1,14,888 | ₹14,888 |
| 3 | ₹1,23,144 | ₹23,144 |
| 4 | ₹1,31,993 | ₹31,993 |
| 5 | ₹1,41,478 | ₹41,478 |
How the interest is calculated
FD maturity = principal × (1 + rate ÷ 400)^(4 × years) · quarterly compounding
₹1,00,000 at 7% for one year grows to ₹1,07,186, slightly more than 7% because interest is added every quarter and then earns interest itself. In an RD, each monthly instalment is compounded the same way for the months it stays in the account, which is why the first instalment earns the most. The RD calculator adds them up for you.
Which should you choose?
- Choose an FD for a bonus, a maturity amount or savings you won't need for a while.
- Choose an RD to save a fixed amount from each month's salary for a goal a year or a few years away: a holiday, a gadget, school fees.
- Use both: run an RD, and when it matures, move the money into an FD.
Want a government-backed option instead? The post office RD pays 6.7% for 5 years (October–December 2026). For long-term goals, compare with a SIP or lumpsum in mutual funds, which can grow faster but aren't guaranteed.
Frequently asked questions
Which gives higher returns, FD or RD?
At the same rate, an FD earns more interest on the same total because the whole amount is invested from day one. An RD is for when you save monthly rather than having the money upfront.
Is RD interest compounded?
Yes, most banks and the post office compound RD interest quarterly.
Can I withdraw an RD early?
Yes, with a penalty, usually a lower interest rate. Some banks also allow a loan against the RD.
Is FD interest taxable?
Yes, at your income tax slab rate, each year as it accrues. TDS applies if interest from one bank exceeds ₹50,000 a year (₹1 lakh for senior citizens).
These results are estimates for planning only, not financial, investment or tax advice. Rates and rules change, and your bank, fund house or employer may calculate slightly differently. Check with them or a qualified adviser before you decide.
Sources
- Reserve Bank of India: deposit interest rates and customer guidance
- DICGC: deposit insurance up to ₹5 lakh
- Income Tax Department: TDS on interest other than securities
Last reviewed: 10 October 2026