For Monthly Savers: RD Usually Wins
If you save from your monthly salary—no lump sum, no bonus windfall—Recurring Deposit (RD) is the better fit. FD requires a lump sum upfront; RD lets you invest a fixed amount every month. Same bank, same tenure, similar interest rate. The difference is cash flow: RD matches how most salaried people save. ₹5,000/month in RD for 3 years builds a corpus without needing ₹1.8 lakh today. FD would need that lump sum. This guide explains why RD suits monthly savers, when FD still makes sense, and how to use both in your savings plan.
Key Takeaways
- Monthly salary only: RD. No lump sum. Auto-debit optional. Discipline built-in
- FD needs lump sum: Bonus, inheritance, sale proceeds. RD needs none
- Same rate, RD slightly lower maturity: Same total invested, FD gives a bit more due to timing. RD trades return for convenience
- Tax: Both taxable. TDS if interest > ₹40K (₹50K for seniors). RD has no 80C; FD has 5-yr tax-saving option
- Hybrid: RD for monthly; FD for bonuses. Use both for different goals
Why RD Fits Monthly Income
- No lump sum: Start with ₹1,000–5,000/month. No need to accumulate first.
- Cash flow match: You earn monthly; RD debits monthly. No timing pressure.
- Goal-based: Trip in 2 years? ₹10,000/month RD. Build corpus without upfront money.
- Lower barrier: FD often has ₹5,000+ minimum. RD can start at ₹100–500 in many banks.
- Discipline: Auto-debit ensures you save. FD is one decision; RD builds habit.
Returns: RD vs FD for Same Amount
For the same total invested, FD typically gives slightly higher maturity because the entire amount earns interest from day one. In RD, each installment has a different holding period—the first month's ₹5,000 earns 36 months of interest, the last month's earns 1 month. So ₹1.8L in FD for 3 years at 7% gives more than ₹5,000×36 in RD at 7% for 3 years. The difference is usually 2–5% of the maturity amount. For monthly savers who don't have the lump sum, RD's slightly lower return is a reasonable trade-off for convenience and discipline.
When to Use FD Instead
- Bonus or windfall: Lump sum in hand. FD gives higher maturity for same total and tenure.
- Emergency fund: Park 6 months expense in FD. Liquid, safe. RD is less flexible for emergency.
- 80C tax-saving: 5-year tax-saving FD gives 80C benefit. RD has no 80C. If you need tax save and have lump sum, use tax-saving FD.
- Short tenure: For 6–12 months, FD with lump sum may be simpler than opening RD.
Worked Example
📊 ₹5,000/month for 3 years, 7% p.a. (quarterly compounding)
Tax on RD and FD
Interest from both RD and FD is taxable as 'Income from Other Sources'. TDS applies if interest exceeds ₹40,000 (₹50,000 for seniors) in a financial year. Banks deduct 10% TDS if PAN is provided. For tax-saving FD (5-year), 80C deduction applies—but RD has no such benefit. If you're in the 30% slab, post-tax return on 7% RD/FD is ~4.9%. Compare with PPF (tax-free) or debt funds (indexation benefit) for better post-tax outcome in higher slabs.
Hybrid Strategy
Use RD for monthly savings from salary—goal-based (vacation, gadget, short-term). Use FD for bonuses, annual incentives, or accumulated surplus. Don't stress about the small return difference; the key is to save. RD builds discipline; FD preserves lump sums. Both are safe, bank-backed. For long-term goals (retirement, child education), consider SIP in mutual funds for higher return potential—RD and FD are for short-to-medium term and low-risk needs.
Use Our Calculators
RD Calculator: Enter monthly amount, tenure, rate. Get maturity value. FD Calculator: Enter lump sum, tenure, rate. Compare to see the difference. Use both for planning.
Disclaimer
Interest rates vary by bank and tenure. Check current rates. Post office RD rates may differ from banks.