Why this matters: Fixed Deposits (FD) and Recurring Deposits (RD) are two popular bank saving instruments for conservative savers in India. Choosing between them depends on your cashflow (lump-sum vs regular saving), time horizon, expected returns, and liquidity needs. This article compares FD and RD with clear formulas, step-by-step examples and a practical comparison table so you can decide and use our calculators to personalise the plan.
What are FD and RD?
- FD (Fixed Deposit): You deposit a lump sum for a fixed tenure at a fixed interest rate. Interest may be compounded quarterly/annually depending on the bank.
- RD (Recurring Deposit): You deposit a fixed amount every month (or periodic frequency) for a fixed tenure; the bank pays interest on the accumulating balance.
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FD (compound interest)
Formula (annual compounding):
A = P × (1 + r)^t
Where: P=principal (lump sum), r=annual rate (decimal), t=years, A=maturity amount.
RD (periodic deposit, deposits at period end)
Formula (monthly deposits):
FV = R × [ ( (1 + r)^n − 1 ) / r ]
Where: R=monthly deposit, r=monthly rate (decimal), n=total months, FV=maturity amount.
Worked examples — step-by-step (digit-by-digit)
Example 1 — FD (lump sum)
Assumptions:
- Principal (P) = ₹1,00,000
- Annual interest rate = 7% (r = 0.07)
- Tenure = 3 years (t = 3)
- Compounding: annual (for simplicity)
Compute A = P × (1 + r)^t
Step 1: r = 0.07 Step 2: 1 + r = 1 + 0.07 = 1.07 Step 3: (1.07)^2 = 1.07 × 1.07 = 1.1449 Step 4: (1.07)^3 = 1.1449 × 1.07 = 1.225043 Step 5: A = 100,000 × 1.225043 = ₹122,504.30
Result: A ₹1,00,000 FD at 7% p.a. for 3 years (annual compounding) matures to approximately ₹1,22,504.30.
Example 2 — RD (monthly deposits)
Assumptions:
- Monthly deposit (R) = ₹5,000
- Annual interest rate = 7% → monthly r = 0.07 / 12 ≈ 0.005833333333333333
- Tenure = 3 years → n = 36 months
- Deposits at month-end (ordinary annuity)
Compute FV = R × [((1 + r)^n − 1) / r]
Step 1: r = 0.07 / 12 = 0.005833333333333333 Step 2: 1 + r = 1.0058333333333333 Step 3: (1 + r)^36 ≈ 1.0058333333333333 ^ 36 ≈ 1.399302589 Step 4: (1 + r)^n − 1 = 1.399302589 − 1 = 0.399302589 Step 5: Divide by r → 0.399302589 ÷ 0.005833333333333333 ≈ 68.25210071033052 Step 6: FV = R × factor = 5,000 × 68.25210071033052 ≈ ₹341,260.50
Result: A monthly RD of ₹5,000 for 3 years at 7% p.a. (deposits at month end) grows to approximately ₹3,41,260.50.
Note: RD maturity is typically higher than simple sum of deposits because earlier deposits earn interest for longer. (Total contributions = 5,000 × 36 = ₹1,80,000; interest earned ≈ ₹1,61,260.50).
Side-by-side comparison (FD vs RD)
| Factor | FD (Example) | RD (Example) |
|---|---|---|
| Type of deposit | Lump-sum deposit (₹1,00,000) | Periodic monthly deposits (₹5,000/month) |
| Rate assumed | 7% p.a. (annual compounding) | 7% p.a. (monthly compounding used via monthly rate) |
| Tenure | 3 years | 3 years |
| Maturity amount | ₹1,22,504.30 | ₹3,41,260.50 |
| Total invested | ₹1,00,000 | ₹1,80,000 |
| Interest earned | ₹22,504.30 | ₹1,61,260.50 |
| Best for | If you have a lump sum to park for a fixed period and want guaranteed returns | If you can save regularly and want disciplined monthly investing with guaranteed returns |
| Liquidity | Premature withdrawal usually allowed with penalty (varies) | Partial withdrawals less common; premature withdrawal/loan options may vary by bank |
| Tax | Interest is taxable as per your income slab (TDS may apply) | Interest is taxable as per your income slab (TDS rules may apply on cumulative interest) |
When to choose FD
- You have a lump sum to invest immediately (inheritance, bonus, sale proceeds).
- You prioritise capital protection and predictability of returns.
- You want simple single-deposit planning (e.g., for a short-term goal).
When to choose RD
- You do not have a lump sum today but can save regularly every month.
- You want a disciplined way to build a goal corpus (education, small emergency fund).
- You prefer consistent monthly contributions and the convenience of mandate/standing instruction.
- If you have both a lump sum and ability to save regularly, consider a combination: part in FD for short-term safety and part via RD (or SIP) for regular saving.
- Compare compounding frequencies — banks may compound quarterly, monthly or annually; more frequent compounding slightly increases effective returns.
- Check for senior citizen FD rates (often higher) and special tenor-linked rates.
- Always consider post-tax returns: compare after-tax effective yields based on your tax slab.
Try our calculators
Want precise numbers for your amounts, rates, compounding frequency and tenure? Use our interactive calculators:
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Frequently asked questions
Q: Is RD better than FD?
A: Neither is strictly better — they serve different use cases. RD suits regular savers; FD suits lump-sum investors. Compare post-tax returns and liquidity needs before deciding.
Q: Which gives higher returns?
A: Returns depend on rate and compounding frequency. For the same nominal annual rate, frequent compounding (monthly/quarterly) yields slightly more than annual compounding. RD maturity can look larger because total contributions over time are higher than a single small FD — compare on a like-for-like invested-amount or goal basis.
Q: Are RD and FD taxable?
A: Yes. Interest on both is taxable as per your income tax slab. TDS rules may apply on interest over a threshold — check current tax regulations.
Disclaimer: Examples are illustrative using assumed rates and standard formulas. Banks/financial institutions may use different compounding rules and rounding; check exact terms and use the linked calculators for precise figures. This article is for educational purposes and not investment advice.