FD vs RD — Which Gives Better Returns? (2026 Comparison)

What is the Difference Between FD and RD?

A Fixed Deposit (FD) requires you to invest a lump sum amount for a fixed period, while a Recurring Deposit (RD) lets you deposit a fixed amount every month for a chosen tenure. Both are offered by banks, post offices, and NBFCs, and both provide guaranteed returns. However, the way interest is calculated differs, leading to different maturity amounts.

In an FD, the entire principal earns interest from day one. In an RD, only the first monthly instalment earns interest for the full tenure — each subsequent instalment earns interest for progressively shorter periods. This fundamental difference means that an FD always gives higher total returns than an RD at the same interest rate and tenure.

Interest Rate Comparison — FD vs RD

Most banks offer the same or very similar interest rates for FDs and RDs of the same tenure. However, some banks offer slightly lower rates on RDs. Here is a comparison of current rates at major banks:

Bank	FD Rate (1 Year)	RD Rate (1 Year)	Difference
SBI	6.80%	6.80%	Same
HDFC Bank	6.60%	6.60%	Same
ICICI Bank	6.70%	6.70%	Same
Kotak Mahindra	7.10%	6.50%	FD higher
Post Office	6.90%	6.70%	FD higher
Axis Bank	6.70%	6.70%	Same

While rates may be the same, the effective return on an FD is always higher because the entire principal compounds from the start. An RD builds up gradually, so only a portion of the total investment earns full-tenure interest.

Returns Comparison — Example with Rs 1,20,000

Let us compare the maturity amount when you have Rs 1,20,000 to invest over 1 year at 7% interest with quarterly compounding:

Feature	FD (Lump Sum)	RD (Rs 10,000/month)
Total Investment	Rs 1,20,000 (upfront)	Rs 1,20,000 (Rs 10,000 x 12)
Interest Earned	Rs 8,604	Rs 4,676
Maturity Amount	Rs 1,28,604	Rs 1,24,676
Effective Return	7.17% (with compounding)	3.90% (on total invested)
Extra Earnings in FD	—	Rs 3,928 more in FD

The FD earns Rs 3,928 more than the RD even though the total amount invested is the same. This is because in the FD, the full Rs 1,20,000 earns interest for 12 months. In the RD, only the first instalment earns 12 months of interest — the last instalment earns only 1 month of interest.

Flexibility and Premature Withdrawal

Both FDs and RDs allow premature withdrawal, but the rules differ slightly:

FD premature withdrawal: Most banks charge a penalty of 0.50% to 1.00% on the applicable rate. You can withdraw the full amount anytime. Some banks offer sweep-in FDs that auto-break only the required portion.
RD premature closure: Banks allow premature closure of RDs, but interest is recalculated at the rate applicable for the actual deposit period, minus a penalty of 0.50-1.00%. Some banks require a minimum of 3 monthly deposits before allowing premature closure.
RD missed instalments: If you miss RD instalments, the bank charges a penalty (usually Rs 1 per Rs 100 per month of default). Consecutive missed instalments for 3-6 months may lead to automatic closure of the RD.
Loan against FD: You can easily get a loan up to 90% of your FD value at 1-2% above the FD rate. Loans against RD are also available but less common.

Tax Treatment — FD vs RD

Both FD and RD interest are taxed identically under the Income Tax Act. The interest earned is added to your total income and taxed as per your applicable slab rate. Key tax rules:

TDS threshold: Rs 40,000 per year for general citizens, Rs 50,000 for senior citizens. TDS applies on total FD/RD interest across all accounts at the same bank.
TDS rate: 10% with PAN, 20% without PAN.
Form 15G/15H: Submit at the start of each financial year to avoid TDS if total income is below taxable limit.
Section 80C: Only 5-year tax-saving FDs qualify for deduction. There is no tax-saving RD option.
Reporting in ITR: Both FD and RD interest must be reported in your income tax return, even if TDS is already deducted.

When to Choose FD vs RD

Choose FD When

You have a lump sum amount available for investment.
You want maximum returns on your savings.
You want flexibility to choose any tenure from 7 days to 10 years.
You need a loan against your deposit (easier with FD).
You want tax savings under Section 80C (5-year tax-saving FD).

Choose RD When

You receive monthly income and want to save a fixed portion every month.
You do not have a lump sum to invest upfront.
You want to build a disciplined savings habit.
You are saving for a specific goal with monthly contributions (e.g., vacation, down payment).
You want guaranteed returns without market risk on your monthly savings.

Frequently Asked Questions

Does FD give more interest than RD?

Yes, FD gives more total interest than RD at the same rate and tenure because the entire principal earns interest from day one. In an RD, each monthly instalment earns interest for a progressively shorter period. For Rs 1,20,000 at 7% for 1 year, FD earns approximately Rs 8,604 while RD earns approximately Rs 4,676 — a difference of nearly Rs 3,928.

Can I convert an RD to FD?

No, you cannot directly convert an existing RD to an FD. However, you can prematurely close your RD and use the proceeds to open a new FD. Keep in mind that premature closure of RD may attract a penalty and interest recalculation at a lower rate applicable for the actual period.

Is RD better than FD for salaried people?

RD is a good option for salaried people who want to save a fixed amount monthly since they receive monthly income. However, if you have a lump sum (like a bonus or savings), FD gives better returns. The ideal strategy for salaried individuals is to use RDs for monthly savings discipline and FDs for lump sum investments like bonuses.

What happens if I miss an RD instalment?

If you miss an RD instalment, the bank charges a penalty, typically Rs 1 per Rs 100 per month of default (equivalent to 1.2% per annum on the missed amount). Most banks allow you to make up missed instalments in the following month. However, if you miss instalments continuously for 3-6 months, the bank may automatically close your RD with applicable penalties.

Which is safer — FD or RD?

Both FD and RD are equally safe as they are offered by the same banks and are covered under the same DICGC insurance of up to Rs 5 lakh per depositor per bank. Post Office FDs and RDs carry sovereign guarantee. The safety depends on the institution, not the product type.

FD vs RD — Which is Better?