What are FD and RD?

Fixed Deposit (FD) is a lump-sum savings instrument: deposit ₹X today, earn interest for a fixed tenure (7 days to 10 years), get your money back with interest at maturity. Recurring Deposit (RD) is the monthly-installment cousin: deposit ₹Y every month for a fixed tenure, get your accumulated amount at maturity.

Both are the most-trusted savings vehicles in India — sovereign-adjacent safety (DICGC insurance up to ₹5 L per bank), predictable returns, no NAV volatility. The trade-off: lower returns than equity mutual funds, and interest is taxable at your slab rate.

How is FD interest calculated?

Most Indian banks compound FD interest quarterly:

A = P × (1 + r/n)^(n × t)

where:

• P = principal
• r = annual interest rate (decimal)
• n = compounding periods per year (4 for quarterly)
• t = tenure in years
• A = maturity amount

Example: ₹1,00,000 FD at 7% for 5 years, quarterly compounded:

A = 100000 × (1 + 0.07/4)^(4×5)
  = 100000 × (1.0175)^20
  = 100000 × 1.41478
  = ₹1,41,478

Interest earned: ₹41,478.

How is RD interest calculated?

RD math is messier because each monthly installment earns interest for a different period. The bank uses quarterly compounding on the running balance:

For each month:
  balance(m) = balance(m-1) + monthly_deposit
  balance compounds at quarterly rate

CalcMaster iterates this month-by-month so the output matches your bank's certificate.

RD returns are slightly lower than FD for the same rate and tenure — because RD installments are staggered (the last installment earns interest for only one month).

Worked example: FD vs RD

Scenario A: ₹1 L FD for 5 years at 7% Scenario B: ₹5,000/month RD for 60 months at 7% (also totals ₹3 L over 5 years, but you'd have to invest ₹5 L FD to equal it)

Comparing same-investment cases:

For the same ₹3 L total invested over 5 years:

• FD ₹3 L lumpsum on day 1 wins on raw return (~₹1.24 L interest)
• RD ₹5,000/month earns less (~₹59 k) because money is staggered
• SIP in equity ~doubles RD's return at higher volatility

FD beats RD if you have the lump-sum upfront; RD beats nothing if you don't.

When to use FD vs RD

Indian FD landscape (mid-2025)

Senior citizens get 0.25–0.5% extra on most bank FDs. Senior-specific schemes (SCSS, POMIS) pay 7.4%–8.2% — even better.

Components and inputs explained

Principal (FD) or monthly deposit (RD)

The amount you're committing. FD has a single deposit; RD has monthly installments.

Interest rate

The annual rate quoted by your bank. Get it from the FD/RD certificate or your bank's website — rates change frequently.

Tenure

How long you'll hold the deposit. FDs: 7 days to 10 years (longer for senior schemes). RDs: 6 months to 10 years.

Compounding frequency

Most Indian banks: quarterly. Some corporate FDs: monthly. NRE/NRO FDs: usually annual. Check the certificate.

Tax implications

FD and RD interest is fully taxable at your slab rate in the year it's accrued (not received). For most middle-income earners in the 20–30% slab, this drags effective post-tax return below 5%:

In the 30% slab, FD returns barely beat inflation. That's why high earners prefer debt funds (only taxed on redemption, indexation removed but still slightly better than FD for tax timing).

TDS rules:

• Banks deduct 10% TDS on FD interest if total bank interest > ₹40,000/year (₹50,000 for senior citizens)
• Submit Form 15G (non-senior, income below taxable) or 15H (senior) to avoid TDS if eligible
• TDS is claimable as tax credit in your ITR

Section 80TTB (senior citizens only): ₹50,000 deduction on bank interest. Section 80TTA (non-senior): ₹10,000 deduction but on savings interest, not FD.

Tax-saver 5-year FD

Under Section 80C, you can claim deduction up to ₹1.5 L for a 5-year tax-saver FD:

• Lock-in: 5 years (cannot be broken)
• Interest is still taxable (only the principal deduction is 80C-eligible)
• Premature withdrawal not allowed
• Loan against FD not allowed (regular FDs do allow it)

Tax-saver FDs are a poor 80C choice for most people — ELSS gives 12% expected return with 3-year lock-in vs FD's 7% with 5-year lock-in. Use tax-saver FD only if you're very risk-averse.

Considerations

• Diversify across banks if FD > ₹5 lakh per bank. DICGC insurance caps at ₹5 L per depositor per bank.
• Premature withdrawal penalty: 0.5–1% deducted from applicable rate. Sometimes the bank pays only the rate for the actual held period, not the contracted tenure.
• Auto-renewal: most banks auto-renew at the prevailing rate. Watch for rate drops; you may want to switch banks.
• Senior citizen schemes (SCSS, POMIS) beat regular FDs for the 60+ cohort. Use the SCSS and POMIS calculators.
• NRE FDs are tax-free for NRIs — the rate also tends to be higher than NRO.
• Don't break an FD just because rates went up. Compute: (new rate × remaining tenure) − (premature withdrawal penalty) − (old rate × remaining tenure). Often the math doesn't justify breaking.

Limitations

• The calculator assumes constant rate over tenure. Real cumulative FDs lock in at booking; floating-rate FDs (rare in India) would shift.
• It doesn't model TDS deduction (interest accrued is shown gross; TDS is deducted quarterly and refunded in ITR).
• It doesn't model premature withdrawal penalties.
• It assumes quarterly compounding for FDs. Some corporate FDs use monthly — adjust the compounding parameter.
• RD math assumes installments on the 1st of each month. Banks vary; small differences in actual maturity.

Related calculators

• PPF Calculator — tax-free alternative for 15-yr lock
• NPS — long-term market-linked retirement
• SCSS — for senior citizens
• POMIS — post office monthly income
• Simple Interest — for non-compounding cases
• Compound Interest — generalized
• Tax-saver FD vs ELSS — for 80C comparison

Final note. FDs and RDs are the most-used, least-optimized investment in Indian households. The default assumption that they're "safe and good" hides the fact that 30% slab tax + 6% inflation makes most FDs lose purchasing power over 10 years. Use FD/RD for short-term goals (< 3 years) and emergency funds. For long-term wealth, equity SIPs and PPF/NPS combinations beat FDs handily. This calculator gives you the honest number — and the honest number is the pre-tax one; subtract your slab rate to see what you actually keep.