Quick disclaimer: Figures below use illustrative rates for comparison purposes. Actual bank rates vary and change periodically — check current rates before opening either product.

"FD earns more than RD at the same rate" is a common line in articles comparing the two — but almost none of them show why, or by how much. Here's the actual comparison, using the same total money and the same interest rate for both.

The same ₹1,20,000, two different paths

Say you have ₹1,20,000 to save over one year, at a 6.5% rate either way:

FD: ₹1,20,000 lump sum RD: ₹10,000/month
Total deposited ₹1,20,000 ₹1,20,000
Approx. maturity value ≈ ₹1,28,000 ≈ ₹1,24,600
Approx. interest earned ≈ ₹8,000 ≈ ₹4,600

Same rate, same total money, but the FD earns almost double the interest. The reason: the FD's full ₹1,20,000 earns interest for the entire 12 months. The RD's first ₹10,000 earns a full year of interest, but the final month's ₹10,000 only earns interest for roughly a few weeks before maturity. Averaged across all 12 deposits, RD money is only "working" for about half the year that FD money is.

When I chose a bank for depositing my money, there were a couple of banks I compared first, but what shocked me was that the bank which offered the highest rate of interest did not give me the most return on investment. The reason why this happened is that I did not look into the finer details and went with what caught my eye.

So why would anyone choose RD, knowing this?

Because for most people, the real choice was never "₹1,20,000 now vs ₹10,000 a month" — it was "₹10,000 a month vs nothing at all," since they didn't have the lump sum in the first place. Comparing RD's lower return to an FD you couldn't have opened anyway isn't a real trade-off. RD's actual competitor is a savings account earning 3–3.5%, and against that, RD wins clearly.

A blended approach many households actually use

Rather than picking one exclusively: route monthly salary savings into an RD, since that's genuinely how the money arrives. When a bonus, tax refund, or other lump sum shows up, put that specific amount into an FD instead, since it exists as a lump sum from day one and can earn the higher effective return an FD provides.

FAQs

Can I convert an RD into an FD partway through?
Not directly — but once an RD matures, the payout can be redeposited into a fresh FD, effectively converting accumulated monthly savings into a lump-sum instrument for the next phase.

Does a higher RD interest rate ever beat a lower FD rate for the same money?
It's possible if the rate gap is large enough, but for the typical small rate differences banks offer between FD and RD, the FD structural advantage (full-year interest on the whole amount) usually dominates unless the RD rate is meaningfully higher.

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