You have money to save and your bank is offering both a Fixed Deposit and a Recurring Deposit. Both sound safe. Both offer a fixed interest rate. Both are backed by the same bank. So what's actually different — and which one should you pick?
The honest answer: it depends on one thing — whether you have a lump sum sitting idle or whether you want to save a fixed amount every month from your salary. Everything else (rates, tax, tenure) is roughly equal. This guide will walk you through the complete FD vs RD comparison so you can make the right call for your situation.
What is a Fixed Deposit (FD)?
A Fixed Deposit is a savings instrument where you deposit a lump sum with a bank for a fixed tenure — ranging from 7 days to 10 years — at a predetermined interest rate. The rate is locked at the time of opening, which means even if the RBI cuts rates tomorrow, your FD continues earning what was agreed.
Key Features of FD
- One-time deposit: You invest a lump sum. No monthly commitments required.
- Fixed rate: Rate is locked for the tenure. No market risk.
- Flexible tenure: 7 days to 10 years — you choose based on your goal.
- Interest payout options: Cumulative (compounded and paid at maturity) or non-cumulative (monthly, quarterly, or annual payouts).
- Premature withdrawal: Allowed with a penalty of 0.5%–1% off the applicable rate.
- Loan against FD: Banks offer loans up to 90% of the FD value — useful if you need liquidity without breaking the FD.
Current FD Rates at Major Banks (2026)
| Bank | 1 Year | 2 Years | 3–5 Years | Senior Citizen Premium |
|---|---|---|---|---|
| SBI | 6.80% | 7.00% | 6.75% | +0.50% |
| HDFC Bank | 6.60% | 7.00% | 7.00% | +0.50% |
| ICICI Bank | 6.70% | 7.00% | 7.00% | +0.50% |
| Axis Bank | 6.70% | 7.10% | 7.10% | +0.50% |
| Small Finance Banks | 7.50–8.50% | 8.00–9.00% | 8.00–9.00% | +0.25–0.50% |
Small Finance Banks offer significantly higher FD rates (8–9%) and are covered under DICGC insurance up to ₹5 lakh — same as any scheduled commercial bank. Worth considering for a portion of your savings.
What is a Recurring Deposit (RD)?
A Recurring Deposit is a savings scheme where you commit to depositing a fixed amount every month for a fixed tenure — typically 6 months to 10 years. At maturity, you receive the total deposits plus compounded interest. Think of it as a series of small FDs opened every month — each monthly installment earns interest from the date it's deposited until maturity.
Key Features of RD
- Monthly deposits: A fixed amount is debited from your account every month — works like an SIP for guaranteed savings.
- Same interest rate as FD: For the same bank and tenure, RD rates typically match FD rates.
- No lump sum needed: Start with as little as ₹100/month at some banks.
- Penalty for missed installments: Banks charge ₹1–2 per ₹100 per month for missed deposits — so automate the debit.
- Premature closure: Allowed, subject to a penalty similar to FDs.
- Post Office RD: 5-year RD at India Post currently offers 6.7% — a safe alternative for those without a bank account.
FD vs RD: Side-by-Side Comparison
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
|---|---|---|
| Investment type | One-time lump sum | Fixed monthly installments |
| Minimum amount | ₹1,000 – ₹10,000 (varies by bank) | ₹100 – ₹500/month (varies by bank) |
| Interest rate | 6.5% – 7.5% (major banks) | Same as FD for same tenure |
| Interest compounding | Quarterly (typically) | Quarterly on each installment |
| Total interest earned | Higher — lump sum earns for full tenure | Lower — each installment earns for remaining tenure only |
| Tenure | 7 days to 10 years | 6 months to 10 years |
| TDS | 10% if interest > ₹40,000/year | 10% if interest > ₹40,000/year |
| Tax on interest | Taxed at income slab rate | Taxed at income slab rate |
| Premature withdrawal | Allowed (0.5–1% penalty) | Allowed (0.5–1% penalty) |
| Loan against deposit | Up to 90% of FD value | Up to 80–90% of deposited amount |
| Best suited for | Lump sum investors | Monthly savers / salaried individuals |
| Tax saving variant | Yes — 5-year Tax Saver FD (Section 80C) | No tax saving variant |
How Interest is Calculated: FD vs RD
This is where FD vs RD becomes very concrete. Let's use real numbers to illustrate the difference.
FD Example: ₹1,20,000 Invested at 7% for 12 Months
You invest ₹1,20,000 in an FD at 7% p.a. for 12 months (compounded quarterly):
- Principal: ₹1,20,000
- Interest earned: ≈ ₹8,620
- Maturity amount: ≈ ₹1,28,620
RD Example: ₹10,000/month at 7% for 12 Months
You invest ₹10,000 per month in an RD at 7% p.a. for 12 months. Your total investment is the same — ₹1,20,000 — but the interest earned is very different:
- Total deposited: ₹1,20,000
- Interest earned: ≈ ₹4,583 (because early installments earn more, later ones earn very little)
- Maturity amount: ≈ ₹1,24,583
Key insight: Same total invested (₹1,20,000), same interest rate (7%), but the FD earns almost double the interest (₹8,620 vs ₹4,583). This is because in an RD, your money trickles in over 12 months — the first ₹10,000 earns for 12 months, but the last ₹10,000 earns for only 1 month.
This does NOT mean RD is a bad deal. If you don't have ₹1,20,000 sitting idle, the RD allows you to save systematically and still earn a guaranteed return. You're comparing apples and oranges — RD is for monthly savers, FD is for lump sum investors.
Calculate Your FD Returns
Use our free FD and RD calculators to see exactly how much your money grows — with quarterly compounding, TDS estimates, and maturity breakdown.
FD Calculator → RD Calculator →Tax Treatment: FD and RD
Both FD and RD are taxed identically — there is no difference here:
- Interest is taxable: All interest earned from FD and RD is added to your annual income and taxed at your applicable income tax slab rate.
- TDS at source: Banks deduct TDS at 10% if total interest from all FDs/RDs in a bank exceeds ₹40,000 in a financial year (₹50,000 for senior citizens). Submit Form 15G (or 15H for seniors) if your total income is below the taxable limit to avoid TDS deduction.
- No indexation benefit: Unlike debt mutual funds (which also lost this benefit post 2023), FD and RD never had indexation — your returns are purely nominal.
- Multiple bank accounts: The ₹40,000 TDS threshold applies per bank, not in total. Spreading deposits across banks can defer TDS, though the total tax liability remains the same.
Tax Saver FD exception: A 5-year Tax Saver FD allows you to claim deduction up to ₹1.5 lakh under Section 80C. The interest earned on Tax Saver FDs is still taxable at slab rate — only the principal invested is deductible. There is a mandatory 5-year lock-in with no premature withdrawal.
When to Choose FD vs When to Choose RD
Choose FD When:
- You have a lump sum available — salary bonus, inheritance, sale of assets, insurance maturity payout
- You want to park an emergency fund in a safe, liquid instrument
- You need a tax deduction and are choosing the 5-year Tax Saver FD under 80C
- You are a retiree or senior citizen looking for regular income — opt for a non-cumulative FD with monthly or quarterly interest payouts
- You want to take a loan against your deposit without liquidating it
Choose RD When:
- You are salaried and want to save a fixed amount every month — RD brings discipline to saving
- You don't have a lump sum but want guaranteed, risk-free returns better than a savings account
- You are saving for a specific goal 1–3 years away (car down payment, wedding, vacation fund)
- You want to build a corpus gradually for a future lump sum FD or investment
- You are a first-time saver and want to build a savings habit
Many financial planners recommend both: Use an RD to save systematically each month, and when the RD matures, roll the corpus into a longer-tenure FD for better compounding. This gives you the best of both instruments.
Special FD Types Worth Knowing
1. Tax Saver FD (Section 80C)
A 5-year FD with most banks and post offices qualifies for ₹1.5 lakh deduction under Section 80C. The interest is fully taxable. No premature withdrawal. Best used if you've exhausted other 80C options (ELSS, PPF, EPF) or need a no-risk 80C investment.
2. Senior Citizen FD
All major banks offer an additional 0.25%–0.75% interest rate on FDs for customers aged 60 and above. The TDS exemption limit is also higher at ₹50,000 per year. Senior citizens in the 0% tax bracket should submit Form 15H to avoid TDS entirely.
3. Flexi / Sweep-in FD
A sweep-in FD is linked to your savings account. Excess funds above a threshold automatically convert to an FD, earning FD rates. When you need cash, funds sweep back to your savings account. Best of both worlds — liquidity of a savings account plus FD returns on idle money.
4. Post Office RD and FD
India Post offers both RD (5-year, currently 6.7%) and FD (1–5 year, 6.9%–7.5%). These carry sovereign guarantee — the safest in the country, though rates may be slightly lower than top private banks. Ideal for conservative investors or those in rural areas.
The Verdict: FD vs RD
✅ Summary: Which Should You Choose?
Choose FD if you have a lump sum to invest. You'll earn more interest for the same rate and tenure, and you have the option of a Tax Saver FD for 80C benefits.
Choose RD if you don't have a lump sum and want to save monthly. It's the disciplined saver's tool — guaranteed returns, no market risk, and perfectly suited to monthly income earners.
Best strategy: Use an RD while you're accumulating, then roll maturity proceeds into an FD when you have enough corpus.
Neither FD nor RD will make you rich — their real job is to protect capital, beat a savings account, and provide certainty. For wealth creation over the long term, pair your FD/RD with equity mutual funds via SIP. Use FD/RD for your short-term goals and emergency fund; use equities for goals 5+ years away.
Frequently Asked Questions
What is the main difference between FD and RD?+
The single biggest difference is how you invest. An FD requires a one-time lump sum — you deposit ₹1,20,000 once and it earns interest for the full tenure. An RD requires you to deposit a fixed amount every month — say ₹10,000 × 12 months = ₹1,20,000 total, but each installment earns interest only from the month it's deposited.
Because of this, an FD with the same total invested amount and the same interest rate earns almost double the interest of an RD. This doesn't make RD bad — it just means RD is for savers who don't have a lump sum yet.
Is the interest rate on FD and RD the same?+
Yes — most banks and post offices offer identical interest rates for FD and RD of the same tenure. At SBI, HDFC, and ICICI, a 1-year FD and a 1-year RD both earn around 6.8%–7.0% p.a. (2026 rates).
The difference is not in the rate — it's in the amount that earns interest over time. An FD deposits everything upfront; an RD spreads deposits over 12 months, so on average only half your total is invested at any point. This is why total interest earned on an RD is roughly half that of an FD for the same total invested.
How do I calculate my FD maturity amount?+
FD maturity is calculated using the compound interest formula: M = P × (1 + r/n)n×t, where P is the principal, r is the annual interest rate (as a decimal), n is the number of compounding periods per year (quarterly = 4), and t is the tenure in years.
Example: ₹1,00,000 at 7% for 2 years (quarterly compounding) → ₹1,00,000 × (1 + 0.07/4)4×2 = ₹1,14,876
Skip the maths — use our calculator for the instant answer with full quarter-by-quarter breakdown:
🧮 FD Calculator — Free, Instant, No LoginHow do I calculate my RD maturity amount?+
RD maturity is more complex — each monthly installment is treated as a separate mini-FD and earns compound interest from the date it's deposited until maturity. The formula is: M = R × [(1 + r/n)n×t − 1] / (1 − (1 + r/n)−1/3) — which is frankly not worth doing by hand.
Use our RD Calculator for your exact maturity amount, total interest earned, and an installment-by-installment breakdown:
🧮 RD Calculator — Free, No Login RequiredIs FD or RD interest taxable in India?+
Yes — interest earned on both FD and RD is fully taxable as "Income from Other Sources" at your income tax slab rate. There is no special exemption or flat rate.
Banks deduct TDS at 10% if your total interest from all FDs and RDs at one bank exceeds ₹40,000 in a financial year (₹50,000 for senior citizens). If TDS is deducted but your total income is below the taxable limit, you can claim a full refund in your ITR.
To prevent TDS from being deducted at source, submit Form 15G (or Form 15H if you're a senior citizen) at the start of each financial year — this declaration tells the bank your total income is below the taxable threshold.
Can I break an FD or RD before the maturity date?+
Yes for most FDs and RDs, subject to a premature withdrawal penalty. Banks typically deduct 0.5% to 1% from the applicable interest rate if you close before maturity.
Important exceptions:
• Tax Saver FDs (5-year, 80C) — mandatory lock-in, no premature withdrawal at all.
• Some small finance banks impose higher penalties or minimum tenure restrictions — check before opening.
For RDs specifically, if you miss installments, banks charge a penalty (typically ₹1–2 per ₹100 per month on missed amounts). If too many installments are missed, the RD may be closed prematurely automatically.
Is FD or RD better for tax saving under Section 80C?+
FD wins — but only the Tax Saver FD variant. A 5-year Tax Saver FD at any scheduled bank (SBI, HDFC, ICICI, etc.) qualifies for deduction up to ₹1.5 lakh under Section 80C. The interest earned is still taxable at your slab rate, but the principal investment is tax-deductible.
RDs offer zero 80C benefit — there is no "Tax Saver RD." If your goal is 80C deduction, use a Tax Saver FD, PPF, ELSS, or NPS.
Keep in mind that Tax Saver FD has a 5-year lock-in with no premature withdrawal. If you might need the money before 5 years, consider PPF (partial withdrawal from year 7) or ELSS (3-year lock-in) instead.
Is FD better than RD for senior citizens?+
For most senior citizens, FD is more suitable. Most banks offer senior citizens an additional 0.25%–0.75% interest on FDs (and typically on RDs too). Senior citizens also get a higher TDS threshold of ₹50,000/year vs ₹40,000 for others.
If you have a retirement corpus (PF withdrawal, gratuity, sale of property), park it in a non-cumulative FD with monthly or quarterly interest payouts — this creates a regular income stream without touching the principal. Submit Form 15H if your total income is below the taxable limit to avoid TDS entirely.
Senior Citizen Savings Scheme (SCSS) is also worth comparing — it currently offers 8.2% and is sovereign-backed, though limited to ₹30 lakh total.
What happens if I miss an RD installment?+
Missing an RD installment triggers a default penalty. Most banks charge ₹1 to ₹2 per ₹100 of missed installment per month until the missed installment is paid. For example, if you miss a ₹10,000 installment, you may be charged ₹100–₹200 per month until it's paid.
If multiple installments are missed (typically 3–4 consecutive months), some banks may allow the RD to continue in default or close it prematurely — deducting the penalty before paying out your maturity amount.
Best practice: Set up an auto-debit/standing instruction from your salary account on the same day you receive your salary, so the RD installment is always paid before you can spend the money.
FD vs RD vs SIP — which gives the best returns?+
Over different time horizons, here's how they compare:
• FD / RD (1–3 years): 6.5%–7.5% guaranteed. Zero risk. Best for short-term goals and emergency fund.
• SIP in debt mutual funds (1–3 years): ~6%–8%, slightly variable. Post-2023 budget, no indexation benefit — taxation is same as FD (slab rate).
• SIP in equity mutual funds (5–10+ years): Historically 10%–15% CAGR, but with significant volatility. Not suitable for goals under 5 years.
The rule of thumb: use FD/RD for capital protection and short-term goals; use equity SIP for long-term wealth creation. Both have a place in a balanced portfolio.