RD vs FD — The Fundamental Difference
Think of it this way: FD is a lump sum that earns interest. RD is a monthly savings plan that builds up like a lump sum. Both are offered by the same banks at similar interest rates, but the compounding math is different.
| Dimension | FD | RD |
|---|---|---|
| Investment | One-time lump sum | Fixed monthly installments |
| Interest | On full amount from day 1 | On each deposit for remaining tenure |
| Returns (same rate) | Higher (more time for full amount) | Lower (monthly deposits have less time) |
| Liquidity | Can break with penalty | Miss installment = penalty |
| Best for | Lump sum available (bonus, inheritance, maturity) | Building savings from salary |
Returns Comparison — ₹60,000 over 1 Year
| Scenario | Amount Invested | Rate | Interest Earned | Maturity |
|---|---|---|---|---|
| FD: ₹60,000 lump sum | ₹60,000 | 7.0% | ₹4,310 | ₹64,310 |
| RD: ₹5,000/month × 12 | ₹60,000 | 7.0% | ₹2,284 | ₹62,284 |
FD earns nearly 2x the interest because the full ₹60,000 earns interest for 12 months. In RD, ₹5,000 deposited in Month 12 earns interest for only 1 month.
When RD Makes More Sense Than FD
- You don't have a lump sum to invest but can save monthly
- You want to build discipline around saving a fixed amount each month
- Short-term goal (6–24 months) — vacation, bike/car down payment, gadget
- You're a student or just started working and building first savings
- You want guaranteed returns vs the volatility of equity SIP for short periods
RD vs SIP — For Building Monthly Savings
| Dimension | RD | Equity SIP |
|---|---|---|
| Return | 6.5–7.5% (guaranteed) | 10–14% historical (variable) |
| Risk | Zero | Market risk |
| Tenure sweet spot | 6 months – 3 years | 5+ years |
| Use case | Short-term goals | Long-term wealth |
Rule of thumb: Goal in under 3 years → RD. Goal in 5+ years → SIP. Between 3–5 years → hybrid (debt fund or balanced SIP).
📅 Calculate RD Maturity
Use RD Calculator →Q: Is RD interest compounded?
Most banks compound RD interest quarterly. Post Office RD also compounds quarterly. Monthly compounding is less common. The effective annual yield with quarterly compounding at 7% nominal is approximately 7.19%.
Q: What happens if I miss an RD installment?
A late fee or penalty is charged — typically ₹1 to ₹2 per ₹100 of the missed installment per month delayed. Missing too many installments (usually 4 consecutive) can lead to premature closure by the bank. Set up auto-debit to never miss an installment.
⚠️ For educational purposes. Please consult a certified financial advisor for personalised advice.