Why does a Fixed Deposit (FD) earn more interest than a Recurring Deposit (RD)?

In a Fixed Deposit, your entire lump sum capital starts earning quarterly compounded interest from Day 1 for the entire duration. In a Recurring Deposit, money is deposited in monthly installments, meaning earlier installments earn interest for the full tenure while later installments earn interest for only a few months.

What is the TDS threshold on FD and RD interest in India?

Under Section 194A of the Income Tax Act, banks deduct 10% TDS if cumulative interest earned across all branches exceeds ₹40,000 in a financial year for regular individuals (₹50,000 for senior citizens aged 60+). If your total taxable income is below the basic exemption limit, you can submit Form 15G or Form 15H to avoid TDS.

Which is better for salaried employees: FD or RD?

If you have an existing lump sum (such as an annual bonus, tax refund, or inheritance), an FD is mathematically superior because it compounds the entire principal immediately. If you want to save a disciplined portion of your monthly paycheck without market volatility, an RD is the ideal fixed-income vehicle.

How does quarterly compounding work for Indian bank deposits?

Most commercial Indian banks (SBI, HDFC, ICICI, Kotak, Axis) compound deposit interest on a quarterly basis (every 3 months). The earned interest is added back to the principal, so subsequent quarters earn interest on the expanded balance.

What is the penalty for premature withdrawal of FD or RD?

Most Indian banks charge a premature withdrawal penalty of 0.5% to 1.0% on the applicable interest rate for the period the deposit was actually held. Additionally, 5-year tax-saving FDs under Section 80C come with a mandatory 5-year lock-in and cannot be prematurely withdrawn.

Are RD returns tax-free in India?

No. Interest earned on bank Recurring Deposits is fully taxable under 'Income from Other Sources' at your applicable slab rate. Unlike 5-year tax saver FDs, RD deposits do not qualify for Section 80C tax deductions.

FD vs RD Calculator India 2026 | Compare Returns, Tax & Liquidity

Deposit Comparison Inputs

Total Principal Capital (₹)

₹

Lump sum invested in FD, or split equally across months in RD.

Annual Interest Rate (% p.a.)

Quarterly compounding applied as per Indian banking rules.

Tenure (Years)

Yrs

Side-by-Side Maturity Returns

Calculating comparison...

Fixed Deposit (Lump Sum ₹2,40,000 from Day 1)

₹2,77,066

Total Interest Earned: ₹37,066

Recurring Deposit (₹10,000 / month)

₹2,59,045

Total Interest Earned: ₹19,045

FD Interest Gain Advantage ₹18,021

What This Tool Does

The SmartPaisa FD vs RD Calculator provides a direct side-by-side financial comparison between investing a lump sum in a Fixed Deposit (FD) versus accumulating the equivalent capital through monthly installments in a Recurring Deposit (RD).

It calculates the exact quarterly compounding interest, final maturity values, Section 194A TDS thresholds, and the monetary advantage of lump sum investing so you can choose the optimal fixed-income strategy for your financial timeline.

Fixed Deposit (FD) vs Recurring Deposit (RD): Compounding & Methodology

Both Fixed Deposits (FD) and Recurring Deposits (RD) are guaranteed-return, fixed-income investment products regulated by the Reserve Bank of India (RBI) and protected up to ₹5 Lakh per bank by the Deposit Insurance and Credit Guarantee Corporation (DICGC). However, they serve completely different cash flow patterns and generate different maturity values.

1. Mathematical Compounding Formulas

Indian commercial banks calculate interest on FDs and RDs using quarterly compounding (n = 4 times per year):

Fixed Deposit Maturity (FD): A = P × [1 + (r / 4)]^(4 × t)

Where P = lump sum deposit, r = annual interest rate (in decimal), and t = tenure in years.

Recurring Deposit Maturity (RD): M = Σ [ P_monthly × (1 + r/4)^(4 × t_i) ]

Where each monthly installment P_monthly compounds for its remaining fraction of tenure t_i.

2. Realistic Worked Example in India

Suppose you have a total capital target of ₹2,40,000 over a 2-year tenure (24 months) at an interest rate of 7.25% p.a.:

Fixed Deposit (Lump Sum): You invest ₹2,40,000 on Day 1. The entire principal compounds every quarter for 8 consecutive quarters.
→ Maturity Value: ₹2,77,066 | Total Interest: ₹37,066
Recurring Deposit (Monthly): You deposit ₹10,000 every month for 24 months. Installment #1 compounds for 24 months, while Installment #24 earns interest for only 1 month.
→ Maturity Value: ₹2,59,045 | Total Interest: ₹19,045
Net Advantage of FD: ₹18,021 higher interest (+94.6% more interest) because 100% of the funds were working from Day 1.

3. Tax Deductions at Source (TDS) Under Section 194A

The taxation rules for both FD and RD interest are identical under the Indian Income Tax Act:

Taxable under Slab: Interest is categorized under "Income from Other Sources" and taxed at your applicable slab rate (e.g. 5%, 10%, 15%, 20%, or 30%).
TDS Threshold: Banks deduct 10% TDS if aggregate interest across all branches exceeds ₹40,000 per financial year for regular citizens (or ₹50,000 for senior citizens aged 60+).
Form 15G / 15H: If your total estimated taxable income for the financial year is below the basic tax exemption limit, you can submit Form 15G (Form 15H for senior citizens) to your bank at the start of the financial year to prevent TDS deduction.

4. Comprehensive Comparison: Fixed Deposit vs Recurring Deposit

Feature	Fixed Deposit (FD)	Recurring Deposit (RD)
Investment Mode	One-time upfront lump sum	Fixed monthly installments
Best Suited For	Surplus savings, annual bonuses, asset sales	Monthly salary allocation and disciplined savings
Compounding Period	Quarterly compounding on entire principal	Quarterly compounding on staggered monthly deposits
Tax Deduction (Sec 80C)	Available only on designated 5-year Tax Saver FDs	Not available on bank Recurring Deposits
Premature Withdrawal	Allowed with 0.5%–1.0% interest rate penalty	Allowed with interest penalty on completed tenure
DICGC Insurance	Protected up to ₹5 Lakh per bank per depositor	Protected up to ₹5 Lakh per bank per depositor

Methodology & Trust Notice: Calculations use standard quarterly compounding formulas prescribed by the Reserve Bank of India (RBI). Review our Calculation Methodology and General Disclaimer.

Frequently Asked Questions

FD vs RD Comparison Calculator India