FD vs RD: Which Deposit Fits Your Goal?

The short answer

Fixed and recurring deposits are the same product wearing different clothes: a bank pays you a declared rate for a declared term. The only difference is when your money arrives. An FD takes one deposit up front; an RD takes a fixed instalment every month.

That single difference decides the choice. If you already have the money, use an FD — an RD would leave most of it sitting idle while you drip it in. If you do not have the money yet, use an RD, and do not read its lower return as a defect. The alternative was not an FD; the alternative was spending the money.

Same rate, very different interest

Run both of our calculators at 7% and the size of the gap is the whole story.

Over one year the RD gives up ₹3,974.33 — a little over 46% of the FD’s interest. Over five years the shortfall grows to ₹1,28,761.65. Same bank, same rate, same total deposited, and the FD earns 41.478% of the principal in interest against the RD’s 20.018%.

Why: it is time on deposit, not the rate

Each RD instalment compounds only for the months remaining in the term. Instalment one earns for 60 months, instalment sixty earns for one, and the average sits near the middle. So the ₹6 lakh in an RD is not ₹6 lakh working for five years — it is closer to ₹6 lakh working for half that.

You can test that intuition directly. Ask the FD calculator what a ₹6,00,000 lump sum earns at 7% over 2.5 years and it returns ₹1,13,666.69 — within a few thousand rupees of the 60-month RD’s ₹1,20,105.27. Solve it precisely and the RD matches an FD of about 2.63 years. That is the correct mental model: an RD is a lump-sum deposit of roughly half the tenure.

Comparing on everything else

Compounding frequency, and what the calculators assume

Banks normally compound FDs quarterly, which is what our FD calculator does by default. Quarterly compounding turns a 7% nominal rate into an effective 7.1859% a year, so the number the bank advertises is not the number your balance grows by. On ₹6,00,000 over five years the frequency is worth checking:

• Compounded yearly: ₹8,41,531.04
• Compounded quarterly (the default): ₹8,48,866.92
• Compounded monthly: ₹8,50,575.16

Yearly to quarterly is worth ₹7,335.88 here; quarterly to monthly adds only ₹1,708.24 more. Frequency matters, but far less than tenure or rate — a lesson worked through in more depth in our compound interest guide.

The RD calculator compounds each instalment monthly at one-twelfth of the annual rate, iterating balance = (balance + instalment) × (1 + rate ÷ 12). Banks generally compound RDs quarterly instead. Monthly compounding credits interest slightly earlier, so read the RD figure as a small over-estimate rather than a quotation, and confirm the exact maturity value with your bank before planning around the last few thousand rupees.

Rate shopping versus getting the tenure right

People spend hours hunting an extra quarter-point and minutes deciding the tenure, which is the wrong way round. Move a 60-month RD of ₹10,000 a month from 7% to 7.5% and the RD calculator lifts maturity from ₹7,20,105.27 to ₹7,29,804 — an extra ₹9,698.73. Worthwhile, certainly. But the structural choice between dripping ₹6 lakh in monthly and depositing it as a lump sum was worth ₹1,28,761.65 at the very same rate, thirteen times as much.

The same asymmetry shows up in effective yields: quarterly compounding turns a 7% FD into 7.1859% and a 7.5% FD into 7.7136%, so half a point of headline rate becomes a little over half a point of real yield — a genuine but modest edge. Get the structure right first. Does the money already exist, and does the tenure end when you actually need the cash? Then negotiate the rate.

Tax and TDS: the part that changes the ranking

Deposit interest is fully taxable at your slab rate, with no equity-style concessional rate and no annual exemption. For someone in the 30% bracket, a 7% FD is closer to 4.9% after tax — which is the real reason deposits struggle against inflation over long horizons.

Separately, banks deduct TDS. As of FY 2025-26 the Section 194A threshold is ₹50,000 of interest paid in a financial year (₹1,00,000 for senior citizens), above which 10% is deducted. The threshold is easier to cross than people assume:

• ₹7,00,000 at 7% for a year produces ₹50,301.32 of interest — just past the line, so ₹5,030.13 is deducted.
• ₹8,00,000 at 7% produces ₹57,487.23, and TDS becomes ₹5,748.72.

An RD of ₹10,000 a month, by contrast, earns just ₹4,648.75 in its first year and stays well clear for a long time. TDS is not the final tax either way: it is a 10% advance against a slab-rate liability, so a 30% taxpayer still owes more at filing, and someone below the taxable limit has to reclaim it.

Liquidity, penalties and the ladder alternative

Both products punish early exit. Breaking an FD usually means the bank reprices it to the rate applicable for the period the money actually stayed, minus a penalty. Missing RD instalments usually costs a small fee, and repeated misses can lead to premature closure at a reduced rate.

If liquidity is your concern, a ladder beats a single deposit: split a lump sum across several FDs maturing in successive years, so one tranche is always close to release without disturbing the rest. This also gives an RD-like alternative — instead of one recurring deposit, book a fresh small FD each month. Each tranche then earns for its own remaining term, which lands very close to the RD outcome while leaving individual tranches breakable in isolation. The cost is admin, plus the fact that shorter tenures often attract slightly lower rates.

Who should pick which

• Bonus, maturity or sale proceeds in hand: FD, or a ladder of FDs. There is no argument for an RD here — dripping money you already hold simply forfeits interest.
• Building an emergency fund from salary: RD, sized so you can pay it in a bad month, then move each maturity into an FD or a liquid fund.
• A known expense 12–24 months out: RD if you are still saving for it, FD if the amount is already set aside. Match the tenure to the date so you never have to break it.
• Retirement money 15 years away: neither is the main vehicle. Guaranteed post-tax returns of 4–5% will not outrun inflation over that horizon — see PPF vs EPF vs NPS for accounts built for long-dated money.
• Senior citizen relying on interest income: FDs, spread across tenures, and note the higher ₹1,00,000 TDS threshold plus the preferential rates most banks offer on senior-citizen deposits.

The caveats

Rates here are illustrative: actual FD and RD rates vary by bank, tenure and deposit size, and change often, so use the rate your bank quotes you rather than the 7% used above. The calculators hold the rate constant for the whole term, ignore TDS, tax and any penalty, and assume every instalment is paid on time.

These are estimates for planning, not investment advice or a maturity quotation. Confirm the exact figure and the current TDS position with your bank, and check your own slab before counting on a post-tax return.