FD vs RD: Choosing Between Lump Sum and Recurring Bank Deposits
Last Updated: June 2026 • By Tushar Gupta
For conservative investors looking for guaranteed returns, bank deposits are the primary choice. However, how you fund these deposits makes a big difference. Fixed Deposits (FD) and Recurring Deposits (RD) share identical interest rates but serve different cash-flow constraints.
1. Core Differences
Fixed Deposit (FD)
An FD is a lump sum investment. You invest a one-time principal amount (e.g., ₹1 Lakh) for a set tenure (from 7 days to 10 years). The interest rate is locked on day one, and you receive the maturity proceeds at the end of the tenure.
Recurring Deposit (RD)
An RD is a regular installment investment. You commit to depositing a fixed sum of money (e.g., ₹5,000) every month for a specific tenure (typically 6 months to 10 years). This is ideal for salaried individuals who save month-by-month.
2. Interest Calculation Slabs
While the advertised annual interest rates of FDs and RDs are identical at any given bank, the actual interest earned differs due to how long the money compounding engine has to run:
- In an **FD**, the entire lump sum compounds quarterly for the *entire* tenure.
- In an **RD**, only the first month's installment compounds for the full tenure. The second month's installment compounds for one month less, the third for two months less, and so on.
For example, if you invest **₹1,20,000** at **7% interest** for **1 year**:
- FD (₹1.2L lump sum): Your maturity value is approximately ₹1,28,620. (Interest earned: ₹8,620).
- RD (₹10,000 monthly): Your total principal is ₹1.2L, but your maturity value is approximately ₹1,24,610. (Interest earned: ₹4,610).
3. Key Parameters Comparison
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
|---|---|---|
| Payment Mode | One-time Lump Sum | Monthly Installments |
| Ideal For | Surplus cash (bonus, sale of asset) | Salaried monthly savings habit |
| Compounding Frequency | Standard quarterly compounding | Quarterly compounding (standard banking rules) |
| Premature Withdrawal | Allowed with a minor penalty (typically 0.5% - 1%) | Allowed with a penalty on interest accrued |
4. Summary Recommendation
- Choose **Fixed Deposit (FD)** if you have a lump sum amount lying idle in your savings account and do not require immediate liquidity. Check returns using our FD Calculator.
- Choose **Recurring Deposit (RD)** if you want to build a savings habit from your monthly income but do not want to take equity market risks. Check returns using our RD Calculator.