FD vs RD: Which Is Better for You? Returns, Tax and Rules

Choose an FD if you already have a lump sum, and an RD if you want to save a fixed amount every month. As of October 2026, banks usually pay similar rates on both for the same tenure, around 6-6.5% a year at large banks for 1-3 years, so the real difference is how your money arrives, not the rate. An FD earns more total interest on the same total amount because all of it starts earning from day one; an RD builds the saving habit when you do not have a lump sum.

FD and RD in one line each

• Fixed deposit (FD): you deposit a lump sum once for a fixed tenure (7 days to 10 years at most banks) at a fixed rate.
• Recurring deposit (RD): you deposit a fixed amount every month for a fixed tenure (often 6 months to 10 years; SBI allows 12 to 120 months with a ₹100 minimum instalment) and receive the total with interest at maturity.

FD vs RD at a glance

Current rates, as of October 2026

Rates change often; always confirm on the bank's own rate page.

Senior citizens usually get an extra 0.50% at large banks. Post office rates shown apply to the October-December 2026 quarter and are reviewed every quarter by the government.

The RBI raised the repo rate to 5.50% on 7 October 2026. Banks may revise deposit rates in the coming weeks, but existing FDs and RDs keep the rate locked in at booking.

Worked example: same money, two routes

Assume an illustrative rate of 6.5% a year, compounded quarterly, for both.

FD: ₹1,20,000 for 1 year

Maturity = 1,20,000 × (1 + 0.065/4)⁴ = 1,20,000 × 1.06660 = ₹1,27,992 Interest earned: ₹7,992

RD: ₹10,000 a month for 12 months (₹1,20,000 total)

Each instalment earns interest only for the months it stays in the account: the first for 12 months, the last for 1 month. Adding up all 12 instalments at 6.5% compounded quarterly gives a maturity of about ₹1,24,286. Interest earned: ₹4,286

Why the RD earns less

The RD's average balance over the year is roughly half the FD's, because money arrives gradually. Interest per rupee per month is broadly the same; the FD simply has more money working for longer. Over 3 years at the same rate, a ₹3.6 lakh FD would grow to about ₹4,36,827, while ₹10,000 a month in an RD would grow to about ₹3,98,244.

So the right comparison is not "FD vs RD" but "Do I have the lump sum now?" If you do, an FD is better. If you are saving from salary, an RD is better than leaving the money idle in a savings account at about 2.5%.

Run your own numbers on the FD calculator and the RD calculator.

Tax on FD and RD interest

• Taxed at your slab rate. Interest is added to "income from other sources" every year, even for cumulative deposits where you receive it only at maturity.
• TDS: Banks deduct TDS at 10% (with PAN) under Section 393 of the Income-tax Act, 2025 (old Section 194A) once total interest from that bank exceeds ₹50,000 in a year, or ₹1 lakh for senior citizens. TDS is higher if PAN is not furnished.
• Form 121: If your total income is below the taxable limit, you can submit Form 121, which replaced Forms 15G and 15H from 1 April 2026, to each bank to avoid TDS.
• Senior citizens (old regime): interest from deposits, including FDs and RDs, can be deducted up to ₹50,000 (old Section 80TTB, mapped to Section 153 of the 2025 Act).
• Tax-saver FD: a 5-year bank FD qualifies for the ₹1.5 lakh deduction in the old regime (old Section 80C, now Section 123). No RD qualifies.

More detail: tax on FD, mutual funds and stocks.

When an FD makes more sense

• You have a bonus, maturity proceeds or savings parked in a savings account.
• You want a monthly or quarterly interest payout, for example in retirement.
• You want to build an FD ladder with staggered maturities.
• You want a tax-saver deposit under the old regime.
• You want to lock in today's rate on a large amount for a longer tenure.

When an RD makes more sense

• You are saving from monthly income for a goal 1-3 years away, such as a vacation, a two-wheeler down payment or school fees.
• You want forced discipline; the fixed instalment works like an SIP with no market risk.
• You are building an emergency fund from zero.
• You are a student or first-jobber with small amounts to save.

Practical tips

1. Match tenure to the goal. Breaking a deposit early usually costs about 0.5-1% in rate.
2. Auto-debit the RD 1-2 days after salary credit so you never miss an instalment.
3. Split large FDs into smaller ones so you can break only what you need.
4. Stay within ₹5 lakh per bank (principal plus interest) if you want full DICGC cover. See what happens if a bank fails.
5. Compare with alternatives for long goals. For 15 years, PPF at 7.1% (October-December 2026) is tax-free. See PPF vs FD vs ELSS.
6. Need cash briefly? A loan against FD can be cheaper than breaking it. See loan against FD and mutual funds.

Key takeaways

• FD is for a lump sum; RD is for regular monthly saving. Rates are usually similar for the same tenure.
• On the same total amount, an FD earns more interest because all of it is invested from day one.
• Both are taxed at your slab rate, with TDS above ₹50,000 (₹1 lakh for seniors) per bank per year.
• Bank deposits are DICGC-insured up to ₹5 lakh per depositor per bank as of October 2026.
• Use an RD to save for short goals from salary, then move matured amounts into FDs or other investments.