RD vs FD: Choose Based on How You Save
You want to park your money safely—but should you open an FD or an RD? Both Recurring Deposits and Fixed Deposits are low-risk, bank-backed options with guaranteed returns. The key difference is simple: FD needs a lump sum upfront: you put in a fixed amount today and it earns interest till maturity. RD needs a fixed monthly amount: you commit to saving ₹5,000 or ₹10,000 every month from your salary. If you have ₹2 lakh from a bonus, inheritance, or sale, FD makes sense. If you want to build savings from your monthly salary without needing a lump sum first, RD fits your cash flow. This guide gives you a complete comparison: features, returns, tax, liquidity, and a clear decision framework for when to choose which.
Key Takeaways
- FD: Lump sum at start. Better maturity for same total if you have the money now
- RD: Monthly fixed amount. Suits salaried, no need for lump sum. Builds discipline
- Same interest rates: Banks offer similar rates for same tenure. RD maturity slightly lower for same total invested
- Tax: Both taxable. TDS if interest >₹40,000. 5-year tax-saving FD has 80C; RD has no 80C
- Choose FD: Lump sum (bonus, sale). Choose RD, regular salary, no lump sum
FD: Lump Sum Investment
Fixed Deposit (FD) requires you to invest the entire principal at the time of opening. You put in ₹1 lakh or ₹5 lakh today, and it earns a fixed rate of interest until maturity. Minimum is often ₹1,000–5,000 depending on the bank. Tenure ranges from 7 days to 10 years; longer tenures typically get higher rates. Interest can be cumulative (paid at maturity) or non-cumulative (monthly or quarterly payout). Premature withdrawal is allowed, usually at 1–2% lower rate; some banks allow partial withdrawal. Tax-saving FD has a 5-year lock-in and qualifies for 80C deduction up to ₹1.5 lakh; RD has no such option. FD suits you when you have a lump sum: bonus, PF withdrawal, inheritance, or sale of an asset.
RD: Monthly Recurring Investment
Recurring Deposit (RD) works like a monthly SIP in a bank. You commit to depositing the same amount (₹5,000 or ₹10,000) every month for a fixed tenure. Minimum is often ₹100–500. Tenure ranges from 6 months to 10 years, with the same rate structure as FD for that bank. Interest is compounded quarterly; each installment earns interest for the remaining months. Premature closure is allowed but with an interest penalty; missed installments may attract a penalty. The biggest benefit: auto-debit enforces discipline. You don't need to accumulate a lump sum first; you save from your salary every month. RD suits salaried professionals who want to build a corpus gradually.
Returns Comparison
📊 Same bank, same tenure (e.g. 3 years, 6.5% p.a.)
When to Choose FD
- Lump sum available: Bonus, PF withdrawal, inheritance, sale of asset. Put it in FD.
- Maximize returns: For same total and tenure, FD gives higher maturity than RD.
- 80C tax benefit: Use 5-year tax-saving FD if you need 80C and prefer fixed income.
- Emergency fund: Park 6–12 months expenses in short-tenure FD. Easy premature withdrawal if needed.
When to Choose RD
- Salaried, no lump sum: You save from monthly salary. RD matches cash flow.
- Goal-based saving: Trip in 2 years, gadget in 1 year. RD builds corpus without needing upfront money.
- Discipline: Auto-debit ensures you save. Harder to skip than manual FD later.
- Small amounts: Start with ₹1,000–2,000/month. FD often has higher minimum.
Tax: FD vs RD
Interest on both FD and RD is taxable as income from other sources. No 80C benefit for regular FD or RD. Tax-saving FD (5-year) offers 80C deduction but has lock-in. TDS at 10% if interest from a bank exceeds ₹40,000 (₹50,000 for seniors). Form 15H/15G can avoid TDS if total income is below taxable limit. For similar principal and tenure, FD generates more interest, so tax liability can be slightly higher, but net of tax, FD usually still wins on maturity.
Liquidity and Premature Withdrawal
Both FD and RD allow premature closure. FD: typically 1–2% lower interest. RD: similar penalty; some banks may not allow before 1 year. Loan against FD is common; loan against RD is less common. For emergency access, FD (lump sum) gives more flexibility; you can break a portion. With RD, you typically close the entire scheme. Consider keeping some in short-tenure FD for liquidity.
Decision Framework: FD or RD?
- Have lump sum now (bonus, inheritance, sale)? → FD. Maximise returns from day one.
- Save from monthly salary, no lump sum? → RD. Matches your cash flow.
- Need 80C tax benefit? → Tax-saving FD (5-year lock-in). RD has no 80C.
- Want emergency liquidity? → Short-tenure FD. Premature withdrawal with minor penalty.
- Goal-based (trip in 2 years, gadget in 1 year)? → RD. Build corpus without upfront money.
Use Our Calculators
Use our FD Calculator to project lump sum maturity. Use our RD Calculator for monthly savings plans. Enter the same total investment and tenure to see the exact difference in maturity amount.
Disclaimer
Interest rates vary by bank and tenure. Check current rates before investing. Past returns do not guarantee future performance.