FD vs RD: Which is Better?
A comprehensive comparison of Fixed Deposits and Recurring Deposits — understand the differences, calculate returns, and choose the right savings instrument for your financial goals.
Lump sum or monthly — which suits you?
Fixed Deposits (FD) and Recurring Deposits (RD) are India's most trusted savings instruments. While both offer guaranteed returns and capital protection, they serve different financial needs. An FD requires a one-time lump sum investment, while an RD lets you save in monthly installments. Understanding their differences is key to maximizing your returns.
What is a Fixed Deposit (FD)?
One-Time Lump Sum Investment
You deposit a single amount (minimum ₹1,000) for a fixed tenure ranging from 7 days to 10 years. The bank pays interest on the entire principal for the full duration.
Higher Interest Rates
FDs typically offer 0.25%–0.50% higher interest rates than RDs of the same tenure. Senior citizens get an additional 0.50% bonus rate across most banks.
Flexible Tenure Options
Choose from ultra-short (7–14 days) to long-term (10 years). Tax-saving FDs come with a 5-year lock-in period under Section 80C of the Income Tax Act.
Loan Against FD Available
You can take a loan of up to 90–95% of your FD value at just 1–2% above the FD rate. Your deposit continues earning interest while you use the funds.
What is a Recurring Deposit (RD)?
Monthly Installment Savings
Deposit a fixed amount every month (as low as ₹100) for a tenure of 6 months to 10 years. Perfect for salaried individuals building a savings habit.
Disciplined Saving Approach
RDs enforce financial discipline — you commit to saving a fixed amount every month. Missing installments may attract a small penalty (typically ₹1.50–₹2.00 per ₹100).
Quarterly Compounding
Interest on RDs is compounded quarterly, same as FDs. However, since each installment earns interest only from its deposit date, the effective yield is slightly lower than an FD of the same rate and tenure.
Ideal for Salaried Individuals
RDs align perfectly with monthly salary cycles. Set up a standing instruction from your savings account and automate your savings without any manual effort.
FD vs RD: Head-to-Head Comparison
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
|---|---|---|
| Investment Mode | One-time lump sum | Monthly installments |
| Minimum Amount | ₹1,000 (some banks ₹100) | ₹100 per month |
| Tenure Range | 7 days to 10 years | 6 months to 10 years |
| Interest Rate | Slightly higher (0.25%–0.50% more) | Slightly lower than FD of same tenure |
| Interest Compounding | Quarterly | Quarterly |
| Effective Yield | Higher (full principal earns for full tenure) | Lower (each installment earns for shorter period) |
| Premature Withdrawal | Allowed with 0.5%–1% penalty on interest | Allowed with 0.5%–1% penalty on interest |
| Loan Facility | Up to 90–95% of FD value | Generally not available |
| Tax on Interest | Taxable; TDS if interest > ₹40,000 (₹50,000 for seniors) | Taxable; TDS if interest > ₹40,000 (₹50,000 for seniors) |
| Section 80C Benefit | Tax-saving FD: up to ₹1.5 lakh deduction (5-year lock-in) | Not available |
| Senior Citizen Benefit | +0.50% extra interest rate | +0.50% extra interest rate |
| Best For | Lump sum investors, retirees, tax savers | Salaried individuals, disciplined savers, beginners |
Current FD & RD Interest Rates (2025)
Rates for regular citizens on 1-year to 5-year tenures. Senior citizens get +0.50% extra. Rates subject to change — verify with the bank before investing.
| Bank | FD Rate (1Y–5Y) | RD Rate (1Y–5Y) | Senior Citizen FD |
|---|---|---|---|
| State Bank of India (SBI) | 6.50% – 6.75% | 6.50% – 6.75% | 7.00% – 7.25% |
| HDFC Bank | 6.60% – 7.00% | 6.60% – 7.00% | 7.10% – 7.50% |
| ICICI Bank | 6.70% – 7.00% | 6.70% – 7.00% | 7.20% – 7.50% |
| Punjab National Bank (PNB) | 6.50% – 6.75% | 6.50% – 6.75% | 7.00% – 7.25% |
| Bank of Baroda | 6.50% – 6.85% | 6.50% – 6.85% | 7.00% – 7.35% |
| Canara Bank | 6.70% – 6.85% | 6.70% – 6.85% | 7.20% – 7.35% |
Returns Comparison: ₹1,20,000 Over 5 Years
Lump Sum FD of ₹1,20,000
💡 The entire ₹1,20,000 earns interest for all 5 years, maximizing compound growth.
Monthly RD of ₹2,000 × 60 Months
⚠️ The first installment earns for 60 months, but the last installment earns for only 1 month — reducing total interest.
FD earns ₹24,399 more than RD on the same total investment
That's a 106% higher return — purely because the full amount compounds from day one.
Tax Implications
TDS on Interest
Banks deduct 10% TDS if total interest across all FDs/RDs exceeds ₹40,000 per year (₹50,000 for senior citizens). Submit Form 15G (non-seniors) or Form 15H (seniors) if your total income is below the taxable limit.
Section 80C Deduction
Only Tax-Saving FDs (5-year lock-in) qualify for deduction up to ₹1.5 lakh under Section 80C. Regular FDs and all RDs do not qualify for any tax deduction on the principal invested.
Tax-Saving Strategy
Interest from both FD and RD is added to your income and taxed at your slab rate. If you're in the 30% bracket, effective post-tax returns drop significantly. Consider debt mutual funds for better tax efficiency on holdings beyond 3 years.
Which One Should You Choose?
✅ Choose FD If You…
- Have a lump sum amount to invest (bonus, maturity proceeds, inheritance)
- Want maximum returns on your savings
- Need a loan against your deposit in the future
- Want tax-saving benefits under Section 80C
- Are a retiree looking for regular interest payouts (monthly/quarterly interest option)
✅ Choose RD If You…
- Are a salaried employee wanting to save monthly from your salary
- Don't have a lump sum but can commit to monthly savings
- Want to build a savings habit with discipline
- Are a beginner investor starting with small amounts
- Want to save for a specific short-to-medium term goal (vacation, gadget, wedding)
Smart Saving Strategies
FD Laddering
Split your lump sum into multiple FDs of different tenures (1Y, 2Y, 3Y, 5Y). As each matures, reinvest at prevailing rates. This gives you liquidity every year while capturing higher long-term rates.
RD-to-FD Conversion
Start with an RD to build the corpus through monthly savings. When the RD matures, invest the entire maturity amount into an FD for higher returns. This combines the best of both worlds.
Multi-Bank Strategy
Spread large deposits across multiple banks to stay within the ₹5 lakh DICGC insurance limit per bank. Small finance banks often offer 0.5%–1% higher rates than major banks.
Ready to start saving?
Use our free calculators to estimate your FD and RD returns before you invest. Make informed decisions with accurate projections.