Quick Work Studio
Calculators
RD vs FD: Which Is Better for You?
By Quick Work Studio · Published 29 October 2026 · How we check facts
A fixed deposit (FD) takes a lump sum once and pays interest on it for a fixed period. A recurring deposit (RD) takes a fixed amount every month and pays interest on what you've put in so far. Both are safe, both have a fixed rate, and at most banks the rate for the same period is the same. So which one should you use? It depends on one thing: whether you already have the money.
Current rates (SBI, October 2026)
| Period | General | Senior citizens |
|---|---|---|
| 1 year to under 2 years | 6.25% | 6.75% |
| 2 years to under 3 years | 6.45% | 6.95% |
| 3 years to under 5 years | 6.30% | 6.80% |
| 5 to 10 years | 6.05% | 7.05% |
SBI's RD rates follow its FD rates for the same period. Other banks differ by a little, and small finance banks often pay more. Rates change with RBI's policy, so check your bank before you open a deposit.
The same rate, different interest
Suppose you can save ₹1.2 lakh over two years at 6.45%:
| FD | RD | |
|---|---|---|
| How you pay | ₹1,20,000 on day 1 | ₹5,000 a month for 24 months |
| Total put in | ₹1,20,000 | ₹1,20,000 |
| Maturity value | ₹1,36,382 | ₹1,28,358 |
| Interest earned | ₹16,382 | ₹8,358 |
The RD earns about half the interest. That's not because its rate is worse. In an FD, the whole ₹1.2 lakh earns interest for two full years. In an RD, the first ₹5,000 earns for two years, but the last ₹5,000 earns for only one month. On average, your money is in the RD for about half the time.
Over five years at 6.30%, the gap is similar: ₹5,000 a month in an RD grows to ₹3,53,091, while ₹3 lakh in an FD on day 1 grows to ₹4,10,070. Both figures use quarterly compounding, which is how Indian banks calculate.
When an RD is the right choice
- You save from your monthly salary and don't have a lump sum yet.
- You want a fixed habit: the amount moves on its own every month, so it doesn't get spent.
- You're saving for something one to three years away: a phone, a course fee, a wedding expense, a bike's down payment.
When an FD is the right choice
- You already have the money: a bonus, a matured RD, savings sitting in an account.
- You want the highest fixed return on that money for a set period.
- You're building an emergency fund that you won't touch but want to earn more than a savings account.
Many people use both: an RD to build the money, then an FD when the RD matures.
Tax and TDS
- Interest from both is added to your income and taxed at your slab rate. It is taxable every year as it builds up, even in a cumulative FD that pays out only at maturity.
- The bank deducts TDS when your interest from that bank crosses ₹50,000 in a year, or ₹1 lakh for senior citizens. Under the Income-tax Act, 2025 this is section 393.
- If your total income is below the taxable limit, you can give the bank Form 121 to stop TDS. It replaces Forms 15G and 15H from 1 April 2026. Below 60, it also needs your total interest and similar income to be within ₹4 lakh.
- No TDS doesn't mean no tax. If your income is taxable, the interest has to be shown in your return.
Safety
Deposits in banks are insured by DICGC, a subsidiary of the RBI, up to ₹5 lakh per person per bank, including interest. If you have more than that, spreading it across banks keeps all of it covered. Post office RDs and time deposits are backed by the government.
Breaking a deposit early
- FD: you can usually close it early, but the bank pays the rate for the period it actually ran, minus a penalty, often 0.5% to 1%.
- RD: missing an instalment usually costs a small fee, and after several missed months the bank can close the RD and pay what's due. Closing early works like an FD, with a lower rate.
- If you might need the money, consider several smaller FDs instead of one big one, so you break only what you need.
RD and FD against inflation
At around 6 to 7%, deposits keep your money safe and roughly ahead of inflation, but after tax the real gain can be small. For goals five or more years away, people often add PPF or mutual fund SIPs. Use the Inflation Calculator to see what your maturity amount will really buy.
Try it: the RD Calculator and the FD Calculator use the same quarterly compounding as banks, with a year-by-year chart. Compare them with the PPF Calculator for longer goals.
Sources
We check facts and figures in this guide against these official sources and update the guide when the rules change. Always confirm with the official source before acting on them. How we write and check guides.