Both a recurring deposit (RD) and a fixed deposit (FD) give you guaranteed interest from a bank or the Post Office. Both carry almost no risk. So which one earns more? The short answer: an FD earns more on the same money, but an RD is often the only practical choice when you save from a monthly salary. This guide compares RD vs FD with real numbers at 2026 rates.
RD vs FD: The Basic Difference
| Feature | Recurring Deposit (RD) | Fixed Deposit (FD) |
|---|---|---|
| How you invest | Fixed amount every month | One lump sum |
| Minimum | ₹100 a month (Post Office); ₹100–₹1,000 at banks | ₹1,000 at most banks |
| Tenure | 6 months to 10 years; Post Office 5 years | 7 days to 10 years |
| Interest rate | Usually the same as the FD rate for that tenure | 6.0%–6.5% at large banks (Oct 2026) |
| Compounding | Quarterly | Quarterly (cumulative FD) |
| Payout options | At maturity only | At maturity, or monthly / quarterly interest |
| Missed payment | Penalty; account may close | Not applicable |
| Tax and TDS | Interest taxed at slab rate; 10% TDS above ₹50,000 a year per bank (₹1 lakh for seniors) | |
Same Rate, Different Interest – Why?
Banks usually offer the same rate on an RD and an FD of the same tenure. Yet the RD always earns less interest in rupees. The reason is time. In an FD, all your money earns interest from the first day. In an RD, your first instalment earns interest for the full tenure, but your last instalment earns interest for only one month. On average, your money is invested for only about half the tenure.
| Period | Total saved | RD (₹5,000/month) | FD (lump sum on day 1) |
|---|---|---|---|
| 1 year | ₹60,000 | ₹62,143 | ₹63,996 |
| 2 years | ₹1,20,000 | ₹1,28,425 | ₹1,36,517 |
| 3 years | ₹1,80,000 | ₹1,99,122 | ₹2,18,413 |
| 5 years | ₹3,00,000 | ₹3,54,954 | ₹4,14,126 |
| 10 years | ₹6,00,000 | ₹8,44,940 | ₹11,43,335 |
All at 6.5% with quarterly compounding. Over five years the FD earns ₹1,14,126 of interest versus ₹54,954 in the RD – about twice as much – because the money was invested for twice as long on average.
RD and FD Rates in October 2026
On 30 September 2026 the government kept small savings rates unchanged for October–December 2026: the Post Office RD at 6.7%, the 5-year Post Office Time Deposit at 7.5%, NSC at 7.7% and PPF at 7.1%. Large banks such as SBI, HDFC Bank and ICICI Bank pay roughly 6.0%–6.5% on regular RDs and FDs after the RBI rate cuts of 2025, with an extra 0.5% or so for senior citizens. Small finance banks often pay 7%–8%, but keep deposits there within the DICGC insurance limit of ₹5 lakh per bank.
For a 5-year monthly saving plan, the Post Office RD beats most large-bank RDs. For a 5-year lump sum, the Post Office Time Deposit (which also qualifies for 80C) or NSC pays more than a bank FD.
Tax on RD and FD Interest
RD and FD interest are taxed the same way: the interest is added to your income and taxed at your slab rate, every year as it accrues, not just at maturity. Banks deduct 10% TDS when your total FD + RD interest at that bank exceeds ₹50,000 in a financial year (₹1 lakh for senior citizens). TDS is only an advance tax – if you are in the 20% or 30% slab, you must pay the rest when filing your return. If your total income is below the taxable limit, submit Form 15G (or 15H if you are 60+) to stop TDS.
In the 30% slab, a 6.5% deposit gives only about 4.5% after tax – barely matching inflation. That is why long-term savers also look at tax-free options like PPF and at equity SIPs. Our SIP vs FD guide covers that comparison.
Liquidity and Flexibility
- Breaking an FD early usually costs 0.5%–1% of interest, and you get the rate for the period actually completed.
- Breaking an RD early has a similar penalty. A Post Office RD can be closed only after 3 years, and then earns just the savings rate.
- Both allow a loan against the deposit – typically up to 90% of an FD and 50% of a Post Office RD balance after 12 instalments.
- Missing RD instalments adds a penalty (₹1 per ₹100 per month at the Post Office) and can lead to closure.
- FDs offer monthly or quarterly interest payouts, useful for retirees; RDs pay only at maturity.
RD or FD: Which Should You Choose?
Choose an RD if…
- You want to save a fixed amount from your monthly salary for a goal 1–5 years away – a bike, a holiday, a wedding, school fees.
- You are building a savings habit and want the discipline of a monthly commitment.
- You want the Post Office's 6.7% for five years.
Choose an FD if…
- You already have a lump sum – a bonus, gratuity, maturity of another deposit, or sale proceeds.
- You want a regular monthly or quarterly income from your savings.
- You want to park an emergency fund in a sweep-in FD linked to your savings account.
Use both
A popular strategy is to run an RD for your monthly savings and, every time a lump sum builds up, move it to an FD. Another is the FD ladder: open a new 1-year FD every month or every year, so something always matures soon and you lock in rates at different times.
What About RD vs SIP?
If your goal is more than seven years away, compare an RD with a monthly SIP in an equity mutual fund. ₹5,000 a month for 10 years becomes about ₹8.45 lakh in an RD at 6.5%, but historically about ₹10–11.6 lakh in an equity SIP at 10%–12% – with no guarantee and with ups and downs along the way. For short goals, stay with RDs and FDs; for long goals, a mix usually works best.
Frequently Asked Questions
Which is better, RD or FD?
An FD earns more interest on the same money because the full amount is invested from day one. An RD is better when you save from your monthly income and do not have a lump sum.
Is the RD interest rate the same as the FD rate?
Usually yes for the same tenure at the same bank. RD interest is lower in rupees because each instalment is invested for a shorter time.
How much will ₹5,000 a month in RD give in 5 years?
About ₹3,54,954 at 6.5% in a bank, or ₹3,56,829 at the Post Office rate of 6.7%, on ₹3 lakh deposited.
Is RD interest taxable like FD interest?
Yes. Both are taxed at your slab rate, and TDS of 10% applies when your combined FD and RD interest at a bank crosses ₹50,000 a year, or ₹1 lakh for senior citizens.
Which is better: Post Office RD or bank RD?
In October 2026 the Post Office 5-year RD pays 6.7%, more than most large banks pay on 5-year RDs. Bank RDs offer more tenure choices and easier online access.
Can I convert an RD into an FD?
Not directly, but when your RD matures you can put the maturity amount into an FD. Some banks also offer auto-sweep from RD to FD.
Disclaimer: Rates were checked in October 2026 and change often; bank rates differ between banks and tenures. Figures are before tax unless stated. This article is general information, not investment advice.