Fixed Deposit vs Recurring Deposit
Lump-sum FD or monthly RD - which gets you a bigger maturity on the same total contribution?
TLDR
FD: deposit Rs 6 lakh today, earn 7.25% on the full amount for 5 years = Rs 8.51L maturity. RD: deposit Rs 10,000/month for 60 months at 7%, same total Rs 6L contributed = Rs 7.16L maturity. The FD is Rs 1.35 lakh ahead despite identical total deposit - because the lump sum compounds throughout while the RD's interest base grows month by month. If you have a lump sum: FD. If you save monthly out of salary: RD (with FD as the destination once you've accumulated enough).
Side-by-side comparison
| Criterion | Fixed Deposit | Recurring Deposit | Winner |
|---|---|---|---|
| Deposit structure | One-time lump sum at start | Equal monthly installments | Fixed Deposit |
| Interest rate (typical 5-yr) | 7.0-7.5% | 6.75-7.25% | Fixed Deposit |
| Compounding base | Full amount from day 1 | Only deposited amount each month | Fixed Deposit |
| Maturity on Rs 6L (5 yr at 7.25%) | Rs 8.51L | Rs 7.16L (RD at 7%) | Fixed Deposit |
| Effective annual return | 7.25% | ~7.05% (slightly lower due to staggered deposits) | Fixed Deposit |
| Tax on interest | Slab rate (TDS at 10% if > Rs 40K/yr) | Same slab rate, same TDS rules | Tie |
| Premature withdrawal | Allowed with 0.5-1% penalty | Generally allowed but with penalty | Tie |
| Minimum deposit | Rs 1,000 typically | Rs 100/month at most banks | Recurring Deposit |
| Maximum deposit | Unlimited | Usually capped at Rs 1.5L/month | Fixed Deposit |
| Best for | Lump sum from bonus, sale, gift, inheritance | Salaried saving monthly out of cash flow | varies |
| Senior citizen bonus rate | +50 bps typical | +50 bps typical | Tie |
| Auto-renewal at maturity | Yes - default | Convert to FD often | Tie |
Run your own numbers
Plug in your numbers - the calculator updates instantly. Same math, your inputs.
Estimates only. Returns are not guaranteed. Tax rules and rates current as of 2026-05-16.
When each one wins
When Fixed Deposit wins
- You have a lump sum to deploy (bonus, FD maturity rollover, gift, inheritance)
- You won't need access to the money for 5+ years
- You're in a stable income / non-saver phase (already have monthly savings flowing elsewhere)
- You're a senior citizen wanting the safest possible return
- You want simpler tax tracking (single interest payout vs monthly accruals)
When Recurring Deposit wins
- You're salaried and can save Rs X/month out of cash flow
- You don't have a lump sum but want to build one (RD → FD at maturity is a textbook flow)
- You're a beginner saver - RD forces monthly discipline
- You're saving for a specific goal 3-5 years out (children's education, car purchase)
- You're a freelancer with irregular income - RD's flexibility helps if some months are tighter
The math (typical scenario)
Same Rs 6 lakh total contribution over 5 years, comparing lump-sum FD vs monthly RD at typical rates:
FD (Rs 6,00,000 lump sum at 7.25% for 5 years) Principal: Rs 6,00,000 Quarterly compounding maturity: Rs 6,00,000 x (1 + 0.0725/4)^(4*5) = Rs 8,58,610 Gross interest: Rs 2,58,610 Tax (30% slab): Rs 77,583 Net: Rs 7,81,027 RD (Rs 10,000/month for 60 months at 7%) Monthly contribution: Rs 10,000 Quarterly compounding: each month's deposit earns from the day it's deposited Maturity formula: Rs 10,000 x [((1 + 0.07/4)^20 - 1) / (1 - (1 + 0.07/4)^(-1/3))] approx Or simpler: Rs 10,000 x [((1.0175)^20 - 1) / 0.0175] x 1/3 ~ Rs 7,16,000 Total contributed: Rs 6,00,000 Gross interest: Rs 1,16,000 Tax (30% slab): Rs 34,800 Net: Rs 6,81,200 DIFFERENCE: FD wins by Rs 99,827 (~17% more wealth) The reason: In the FD, the full Rs 6 lakh is compounding all 5 years. In the RD, only month-60's deposit gets 1 month of compounding; month-1's gets the full 60 months. Average effective compounding period is ~30 months vs 60 months for the FD.
Why the lump-sum FD always wins on raw math
The compounding base difference
Compound interest needs TIME on TOTAL PRINCIPAL. In an FD, your Rs 6 lakh earns interest for the full 5 years - all 60 months at the headline rate. In an RD, month-1's Rs 10,000 deposit earns for 60 months, but month-60's deposit only earns for 1 month before maturity. The average duration is just ~30 months. Even at the same headline rate, the FD's compounded total is roughly 15-20% higher on identical total contribution.
RD's hidden virtue: behavior
The 'FD wins on math' assumes you HAVE the Rs 6 lakh lump sum. Most retail savers don't - they have monthly cash flow. For them, the realistic comparison isn't FD vs RD, it's RD vs leaving the money in a savings account (3-4% interest, often spent before saved). RD's monthly auto-debit forces discipline - the money leaves your account on day 1 of the month, so you can't accidentally spend it. This behavioural advantage usually trumps the math gap.
The hybrid play: RD → FD ladder
Optimal strategy if you have monthly cash flow: run an RD for 1-3 years to build a lump sum, then convert the maturity to an FD for the remaining time horizon. You get RD discipline plus FD compounding. Most banks even let you set up an 'auto-convert' RD that becomes an FD at maturity.
Tax efficiency: small differences
Tax treatment is identical for FD and RD - both are taxed at slab rate. TDS applies at 10% if annual interest from one bank exceeds Rs 40,000 (Rs 50K for seniors). If you split FDs across multiple banks to stay under the threshold, you can avoid TDS - though the income is still reportable. Tax-free options like PPF (7.1% EEE) often beat both FD and RD on after-tax basis for higher tax brackets.
Frequently asked questions
Is FD really better than RD on the same contribution?
Yes - by 10-20% on a 5-year horizon with the same total deposit. The lump sum starts compounding from day 1 while each RD installment only compounds from its deposit date.
Can I convert my RD into an FD at maturity?
Yes - most banks offer auto-conversion. At maturity the RD balance becomes a fresh FD for any tenure you choose, at the prevailing FD rate.
Is the interest rate the same for FD and RD?
Usually RD rates are 25-50 bps LOWER than FD rates at the same bank for the same tenure. SBI, HDFC, ICICI all post both rates separately - check before opening.
Is there TDS on RD interest?
Yes - TDS at 10% if your total interest from a bank (FD + RD + savings) exceeds Rs 40,000 in a year (Rs 50,000 for senior citizens).
Should I open separate FDs at different banks to avoid TDS?
Yes - this is legal and common. Each bank tracks its own threshold. Note: the interest is STILL reportable on your ITR - splitting avoids TDS but not the actual tax.
What's the minimum monthly RD amount?
Rs 100/month at most banks, sometimes Rs 500/month for fixed product variants. Post Office RD has Rs 100 minimum.
Can I increase my monthly RD installment mid-tenure?
Usually no - RDs are fixed-installment products. Open a parallel RD for the additional amount, or convert at maturity to a higher-deposit one.
What happens if I miss an RD installment?
Penalty is typically Rs 1-2 per Rs 100 of installment for each missed month. After 4-6 missed installments, the account may be closed and the balance refunded with penalty interest only.
Are FD and RD better than mutual funds?
Better for safety - FD/RD are sovereign-insured up to Rs 5L per bank under DICGC; mutual funds aren't insured against market loss. Worse for returns - long-term equity mutual funds average 10-12% vs FD's 7%. Use both: FD/RD for short-term goals and emergency fund, mutual funds for 5+ year wealth building.
Can I get an instant loan against my FD?
Yes - up to 90% of FD value at 1-2% above your FD rate. Faster than personal loans, lower rates. RD loans are also available but at 80-90% of accumulated balance.