FD or RD? Where Should You Invest ₹7 Lakh for 5 Years to Get Maximum Returns?

If you’ve managed to save ₹7 lakh and are planning to invest it safely for the next five years, you’re likely facing a common dilemma: Should you choose a Fixed Deposit (FD) or go for a Recurring Deposit (RD)? While both are reliable and low-risk investment options, they operate differently and suit different financial habits and goals.

This detailed comparison will help you understand how FD and RD differ and which one might offer you better returns over five years.

What is a Fixed Deposit (FD)?

A Fixed Deposit is a one-time investment where you deposit a lump sum—say ₹7 lakh—at once for a fixed tenure. The amount remains locked in for the entire term, and the bank pays interest regularly or at maturity. At the end of 5 years, you receive your principal amount along with the accumulated interest.

FDs are ideal for those who have a large sum of money available and prefer guaranteed returns without any monthly contribution commitment.

What is a Recurring Deposit (RD)?

An RD allows you to invest a fixed amount every month over a predetermined period. Unlike an FD, you don’t need to invest ₹7 lakh at once. Instead, you can contribute smaller sums each month over five years, and the bank pays interest on the growing deposit.

RDs are suitable for people who want to build a disciplined savings habit and may not have a large lump sum available for investment.

Interest Rates Comparison

As of now, major banks and post offices offer the following interest rates:

• SBI FD (Regular Customers): Between 3.05% and 6.60% annually

• SBI FD (Senior Citizens): Up to 7.10%

• Post Office RD: Around 6.7% annual interest, compounded quarterly

The interest rates on RDs are usually slightly lower than FDs, as the entire amount is not invested upfront. However, both investment types provide stable and secure returns.

Return Calculation: FD vs RD for ₹7 Lakh Over 5 Years

Let’s break it down with estimated returns:

• FD Investment: If you invest ₹7 lakh in a 5-year FD at around 6.8% interest, your maturity amount would be approximately ₹9.66 lakh. That’s a gain of about ₹2.66 lakh over five years.

• RD Investment: If you invest ₹7 lakh in the form of monthly RD deposits over five years, the total return would be around ₹8.34 lakh. That’s a gain of about ₹1.32 lakh, which is significantly lower than the FD return.

Which One Should You Choose?

Go for FD if:

• You already have a lump sum of ₹7 lakh

• You want higher and assured returns

• You are okay with locking the amount for the entire tenure

Choose RD if:

• You don’t have a large amount upfront

• You prefer saving a fixed sum every month

• You want to build a disciplined saving habit

Do note: Interest earned on both FD and RD is taxable under “Income from Other Sources,” and it can impact your overall return post-tax. Always consider your tax slab and consult a financial advisor if needed before making a decision.

Final Thoughts

While both FD and RD are safe investment avenues, the better option depends on your financial situation and goals. If your priority is maximizing returns with minimum effort and you already have the capital, FD is the clear winner. However, if you’re starting small and want to build your savings gradually, an RD offers a structured approach.

In either case, make sure to check current interest rates, bank credibility, and the tax implications before locking in your funds.