FD vs RD: How Fixed and Recurring Deposits Work and Which to Choose

Fixed deposits (FD) and recurring deposits (RD) are the two most common safe savings products in India. Both pay a fixed interest rate decided on the day you open them. The difference is how the money goes in.

Fixed deposit: one payment, fixed term

You deposit a single amount for a chosen period. Most banks compound FD interest quarterly. The maturity value is:

Example: ₹1,00,000 at 7% for 5 years with quarterly compounding grows to about ₹1,41,478. Interest earned is about ₹41,478.

Recurring deposit: monthly payments, fixed term

You deposit the same amount every month. Each instalment earns interest only from the month it is paid, so the first instalment earns for the whole term and the last for one month. With ₹5,000 a month at 7% for 5 years, you deposit ₹3,00,000 and the maturity value is roughly ₹3.6 lakh — exact figures vary slightly by how each bank compounds.

Side-by-side

Tax and TDS

• Interest from both FD and RD is fully taxable at your income-tax slab rate.
• Banks deduct TDS when interest crosses the threshold for the financial year. If your total income is below the taxable limit, you can submit Form 15G (or 15H for senior citizens) to avoid TDS.
• Interest is taxable every year as it accrues, even if you receive it only at maturity.

Which should you choose?

• Have a sum ready now (bonus, savings) and need it on a known date: FD.
• Want to build a fixed amount for a goal 1–3 years away, from salary: RD.
• Want both safety and flexibility: split money across several smaller FDs with different maturity dates ("laddering") so you never have to break one large FD.