FD or RD: which fits your money
Fixed and recurring deposits pay similar rates and carry the same guarantees. The difference is when the money goes in — and that single difference decides which one suits your situation, and how much interest you can expect.
The comparison people get wrong
₹3 lakh in a five-year FD at 7% earns about ₹1.24 lakh of interest. Saving ₹5,000 a month for the same five years at the same rate deposits the same ₹3 lakh but earns only about ₹59,700.
The RD is not paying a worse rate. In an FD every rupee is invested for five years; in an RD the average rupee is invested for about two and a half. Once you account for that, the two are equivalent.
Which one your situation calls for
If you already hold the money, a fixed deposit is almost always the better choice, because it starts compounding immediately. Splitting a lump sum into monthly instalments only delays returns.
If the money arrives with your salary each month, an RD is the natural fit. The alternative — accumulating in a savings account and making an FD later — earns a lower savings-account rate in the meantime.
Flexibility and penalties
FDs can be split into several deposits so you break only what you need. RDs are a single commitment where missed instalments attract a penalty and repeated defaults can close the account early.
Both allow premature withdrawal at the rate applicable to the completed period, usually less a penalty of about 0.5-1%. Both also permit a loan or overdraft against the balance at most banks.
Tax is identical, so it is not a tiebreaker
Interest on both is taxable at your slab rate as it accrues, and TDS applies once interest from the bank crosses the notified threshold. Neither product has any tax advantage over the other.
For a 30%-bracket taxpayer, a 7% deposit of either kind returns roughly 4.8% after tax — which is the number to weigh against inflation and against alternatives such as debt funds or PPF.
Same ₹3 lakh, same 7%, five years
- FD — amount invested
- ₹3,00,000 on day one
- FD — interest earned
- ≈ ₹1,24,433
- RD — amount invested
- ₹5,000 × 60 months
- RD — interest earned
- ≈ ₹59,690
- Average time invested (FD)
- 5 years
- Average time invested (RD)
- ≈ 2.5 years
The FD earns roughly double because the money was there twice as long on average. Compare an RD against other monthly options, and an FD against other lump-sum options.