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FD vs RD: Difference, Tax, Returns Compared

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Both are fixed-rate savings products at Indian banks and India Post. Both run to maturity. Both are taxed the same way. So what actually separates them, and how do you decide which to pick?

An FD is a one-shot lump sum — you commit ₹X today, leave it for N years, and collect principal plus interest at maturity. An RD is the same idea spread across monthly installments — you commit to depositing ₹X every month for N years. The bank pays a fixed interest rate agreed upfront for both, and you can't add to or withdraw from either without a penalty.

Most of the confusion between the two comes from a single non-obvious fact: an FD pays slightly more than an RD at the same headline rate, because each rupee in an FD earns interest from day one, while RD installments only start earning when they're deposited. We break that down below, plus when each product actually fits.

At-a-glance comparison

Feature Fixed Deposit (FD) Recurring Deposit (RD)
Deposit pattern One lump sum upfront Fixed amount every month
Tenure 7 days to 10 years 6 months to 10 years
Interest rate Fixed at booking; tenure-banded Fixed at booking; usually within ±0.25% of the FD rate at the same bank
Effective return Full interest on the full deposit for the full tenure Lower than FD at the same rate — see next section
Tax treatment Identical. Interest is taxable as "Income from Other Sources" at slab; TDS at 10% past ₹40,000/yr per bank (₹50,000 for seniors)
Insurance Both DICGC-insured to ₹5 lakh per depositor per bank (post-office variants are sovereign-backed)
Premature withdrawal Allowed with 0.5–1% penalty; some sweep-in flexis allow partial breaks Allowed with similar penalty; partial break uncommon
Best fit Surplus to park — bonus, sale proceeds, maturity payouts Disciplined monthly saving — emergency fund build-up, annual goal targets

Why an FD edges out an RD at the same rate

Suppose both pay 7% p.a. and you commit ₹60,000 for one year. With an FD, the full ₹60,000 earns 7% for 12 months. With an RD of ₹5,000/month, the first ₹5,000 earns 7% for 12 months, but the second installment only earns 7% for 11 months, the third for 10 months, and so on. The twelfth installment earns just one month of interest.

Averaged across all 12 installments, your RD principal earns 7% for only about 6.5 months on average — roughly half the interest your FD earns at the same rate. The rate card looks identical; the realised return is not. This isn't a bug in the RD product — it accurately reflects that your money is being deployed gradually, not all at once.

The comparison only makes sense when you actually have the lump sum on day one. If you don't, the choice isn't "FD vs RD at the same rate" — it's "RD at the bank's RD rate vs the savings-account rate on the money you'd otherwise leave idle." On that comparison, RD almost always wins.

Tax and insurance — identical

Interest from both adds to your gross income under "Income from Other Sources" and is taxed at your slab. The bank deducts TDS at 10% (20% if you haven't given a PAN) when combined FD + RD interest from that single bank crosses ₹40,000 in a financial year — ₹50,000 for senior citizens. Submitting Form 15G or 15H (when eligible) suppresses TDS at source; you still report and pay any tax due at slab.

DICGC insures both up to ₹5 lakh per depositor per bank, aggregating all your deposits at that bank. NBFC FDs and corporate fixed deposits don't get DICGC cover — the credit rating of the issuer is your only protection. Post-office FDs and RDs sit on the sovereign balance sheet, so the cap doesn't apply.

When to pick which

Pick an FD when: you already have the money. A bonus, a property-sale residual, an insurance maturity payout, an unused emergency fund segment. The full amount starts earning the contracted rate from day one, and the maturity figure is exact.

Pick an RD when: you have predictable monthly cashflow you want to save with discipline. Building an emergency fund from scratch, saving for an annual insurance premium, parking the gap between salary and SIPs. Auto-debit from your salary account makes contribution effortless.

Pick a sweep-in FD when: your bank offers it (most do). Surplus above a savings-account threshold auto-converts into short FDs and reverses back when balance dips. You earn FD rates on the surplus without locking it.

Premature withdrawal

Both products allow early break with a penalty — typically 0.5% to 1% off the contracted rate, with interest recomputed at the rate that would have applied to the actual tenure held. A 3-year FD broken at month 18 is paid out as if you'd booked an 18-month FD originally, minus the 1% penalty.

Two exceptions are worth knowing: tax-saver FDs (5-year lock-in under Section 80C) cannot be broken early — that's the trade-off for the ₹1.5L deduction. And many banks offer loan against FD at 1–2% above the FD rate, often a better answer than breaking the FD if you need short-term liquidity.

Model your specific case

The FD calculator will show you the exact maturity for any FD scenario. We don't yet ship a dedicated RD calculator — for an RD estimate, multiply your monthly installment by the tenure in months for the principal, and compute interest as if the average rupee was deposited for half the tenure at the RD rate.

Frequently asked questions

A Fixed Deposit (FD) is a one-time lump-sum deposit for a chosen tenure, e.g. ₹2 lakh parked for 3 years at 7% p.a. A Recurring Deposit (RD) splits the same idea into equal monthly installments — you commit to depositing a fixed amount, say ₹5,000, every month for the chosen tenure. Both are offered by banks and India Post, both pay fixed interest agreed upfront, and both run to a fixed maturity date.

They are usually similar but not always identical. Banks publish separate rate cards for FD and RD products; the spread is typically within ±0.25%. Senior-citizen bonus (0.50% extra) typically applies to both, and most public-sector banks now align RD rates with their 1–5-year FD slab. Always confirm against the bank's current rate card before depositing.

Every rupee in an FD earns interest from day one because the whole amount sits in the deposit from day one. In an RD, only the first month's installment earns 12 months of interest by year-end; the second month's installment earns 11 months, and so on — the twelfth installment earns just one month. The effective return on an RD is therefore lower than an FD at the same headline rate, even though the headline rate is identical. Modeling your specific case in the FD calculator and adding installments month-by-month makes the gap obvious.

Identically. Interest from either is added to your gross income as "Income from Other Sources" and taxed at your slab rate. TDS at 10% is deducted by the bank if the combined FD + RD interest from that bank exceeds ₹40,000 in a financial year (₹50,000 for senior citizens). Without a PAN on file, TDS is 20%. There's no tax advantage to picking one over the other.

Both are covered under DICGC insurance up to ₹5 lakh per depositor per bank — that figure aggregates all your deposits at that bank, FD and RD and savings together. Post-office FDs and RDs are sovereign-backed, so the insurance question does not apply. NBFC FDs are not DICGC-insured; credit-rating of the issuer is the only protection.

RD wins when you do not have a lump sum but you have predictable monthly cashflow you want to save with discipline — say you're building an emergency fund or saving for a fixed-date goal like an annual insurance premium. FD wins when you already have surplus to park — a bonus, a property-sale residual, an insurance maturity payout. Some banks offer "sweep-in" hybrid products where surplus from a savings account auto-converts into short FDs; that's a third option worth knowing about.

Yes, both allow premature withdrawal with a penalty. Banks typically dock 0.5–1% off the contracted rate and re-compute interest at the rate that would have applied to the actual tenure held — so a 3-year FD broken at month 18 might be paid out at the 1-year rate minus 1%. For RDs, premature closure usually returns principal plus interest at a similarly reduced rate. Tax-saver FDs (5-year lock-in under Section 80C) cannot be broken early.