FD vs RD: Differences, Interest Calculation, Tax Rules and Which One to Choose

Fixed deposits (FD) and recurring deposits (RD) are among the most common savings products in India. Both give a fixed rate of interest and are low risk. The difference is how you put the money in. An FD takes a lump sum, while an RD takes a fixed amount every month. This guide compares them with numbers and shows how tax works on both.

How each works

Worked examples

At an assumed 7% interest rate compounded quarterly:

• An FD of ₹1,00,000 for 5 years matures at about ₹141,478.
• An RD of ₹5,000 a month for 5 years deposits ₹3,00,000 and matures at about ₹359,664.

Rates differ by bank and tenure, and senior citizens usually get an extra 0.25% to 0.50%. Try the FD calculator and the RD calculator.

Side-by-side comparison

Tax rules

• Interest on both is taxable at your slab rate, added to your income each year as it accrues, even if it is paid at maturity.
• Banks deduct TDS at 10% if interest across the bank's branches exceeds the annual threshold, which is higher for senior citizens. If your income is below the taxable limit, submit Form 15G or 15H to avoid TDS where eligible. Check current limits.
• A 5-year tax-saving FD qualifies for deduction under section 80C in the old regime, with a lock-in. See tax-saving FDs.

Estimate your post-tax return with the income tax calculator. At a 30% slab, a 7% FD earns about 4.9% after tax before cess, which may barely beat inflation.

Which should you choose?

1. If you have a lump sum to park for a defined period, choose an FD, or a liquid fund if you may need it sooner.
2. If you want to save from monthly income for a goal in one to three years, choose an RD.
3. For goals beyond five years, consider equity funds or PPF, which may offer better returns, as discussed in our investing guide.

Safety

Bank deposits are insured by DICGC up to ₹5 lakh per depositor per bank, covering principal and interest combined. Spread large amounts across banks. Corporate FDs offer higher rates but carry credit risk and are not insured. Small finance banks pay higher rates but are covered by the same DICGC limit.

Ladder strategy

Instead of one big FD, split the money into several FDs maturing at different times. If you need cash, you break only one. As each matures, you reinvest at the then current rates. This balances liquidity with returns.

Mistakes to avoid

• Locking all savings in long FDs and having no emergency access. See emergency fund.
• Ignoring tax and inflation.
• Breaking FDs early and losing interest.
• Missing RD instalments.

Rates, tax limits and insurance coverage can change, so verify with your bank and the RBI.

Special cases: senior citizens, NRIs and corporate deposits

Senior citizens get higher rates at most banks, and some post office and government-backed schemes offer attractive rates for them, with tax rules attached. NRIs can open NRO and NRE deposits, where NRE interest is generally tax-free in India but NRO interest is taxable. Corporate and NBFC deposits promise higher rates but depend on the company's creditworthiness and are not covered by DICGC insurance, so keep exposure small and check the credit rating. Always compare the effective yield after tax and read the premature withdrawal terms.

Real return after tax and inflation

Suppose an FD pays 7% and you are in the 30% slab, so the post-tax return is around 4.9%. If inflation is 5%, your real return is roughly zero. That is acceptable for an emergency fund or a short-term goal, where safety matters most, but it is a poor way to build long-term wealth. For goals ten or more years away, compare with PPF, which offers tax-free interest at government-set rates, and with equity funds, which are riskier but have historically beaten inflation over long periods. Use the inflation calculator to see what your maturity amount will really buy.

Frequently asked questions

What is the main difference between FD and RD?

FD is a lump-sum deposit, RD is a monthly deposit.

Is interest on FD taxable?

Yes, at your slab rate, and TDS may apply above a threshold.

Are bank FDs safe?

Deposits are insured by DICGC up to ₹5 lakh per depositor per bank.

Can I withdraw before maturity?

Yes, usually with a penalty.

Which gives more interest?

Rates are similar for the same tenure. The effective yield depends on how long money stays invested.

What is a tax-saving FD?

A 5-year FD that qualifies for 80C deduction under the old regime.

Last reviewed 8 November 2026. Rates, limits and rules change, so confirm figures with the official source before you act.