FD vs RD: Only 7 Months Left in FY 2026-27 - Know Which Is Better?

The two names that come up every single time are Fixed Deposit (FD) and Recurring Deposit (RD). Both are offered by every bank and post office in the country, both are low-risk, and both get taxed the same way in principle - but the similarity ends there.

Why Does The Timing Matter?

FY 2026-27 ends on 31 March 2027. Any FD or RD you start now will generate interest that falls partly in this financial year and partly in the next, so it's worth planning both the investment and the tax angle together - especially if you're trying to make use of Section 80C room or manage which year the interest income lands in.  

FD and RD - The Basics

A Fixed Deposit serves as a lump-sum investment vehicle.

• By depositing a single amount and locking it in for a chosen tenure, you secure a fixed rate of interest from the bank for the entire duration.
• Because the total principal accumulates interest right from the very first day, FDs are highly attractive for individuals looking to park substantial cash surpluses, such as bonuses, year-end savings, or maturity proceeds from other investments.

A Recurring Deposit works differently.

• Instead of a lump sum, you commit to depositing a fixed amount every month for a chosen tenure.
• Each monthly instalment earns interest only from the date it is deposited, so the average amount actually earning interest through the tenure is much lower than the total you eventually put in.
• RDs exist to build a savings habit, not to maximise returns on money you already have.

FD vs RD: Side-By-Side Comparison

Current Interest Rate Snapshot

Rates change frequently with RBI's monetary policy stance, so always check your bank's current card rate before booking. As a broad guide for FY 2026-27:

• Public sector banks: roughly 6.25% to 7% for general FD tenures, with senior citizens getting 0.25% to 0.75% extra.
• Private banks: roughly 6.5% to 7.5% depending on tenure.
• Small finance banks and select NBFCs: often above 8%, sometimes touching 9%+, but carry comparatively higher institutional risk. DICGC insurance in any case covers deposits only up to Rs 5 lakh per depositor per bank.
• Post office schemes continue to offer competitive, government-backed rates and are a reasonable middle ground on safety.

For most banks, RD rates track very close to FD rates for the same tenure, sometimes marginally lower. The real difference in your final maturity amount doesn't come from the rate - it comes from how the money is deployed, as shown in the comparison table above.

Tax Benefit in FD

Regular FD

Interest earned on a regular fixed deposit gets added to your total income and taxed at your applicable slab rate. There is no exemption or deduction available on a regular FD, regardless of tenure.

Tax-saver FD (5-year lock-in)

This is the only FD variant that offers a direct tax benefit. Under Section 80C, an investment of up to Rs 1.5 lakh in a 5-year tax-saver FD is eligible for deduction from total income — but only if you are filing under the old tax regime. A few conditions to keep in mind:

• The deduction is available only in the year of investment, not every year.
• The deposit cannot be prematurely withdrawn, and no loan can be taken against it.
• The interest earned on a tax-saver FD is still fully taxable every year - only the principal invested gets the 80C benefit, not the interest.
• Under the new tax regime, Section 80C is not available, so a tax-saver FD offers no advantage over a regular FD if that's the regime you've opted for.

Explore More In Details - Fixed Deposit Limits from 2026 along with New IT Rules

Tax Benefit in RD

This is where a lot of first-time investors get it wrong: there is no tax-saving RD. No RD scheme, in any bank or the post office, qualifies for a deduction under Section 80C or any other section. Interest earned on an RD is fully taxable at your slab rate, exactly like a regular FD. The only tax "benefit" an RD offers is behavioural - it forces disciplined saving, which indirectly helps you build the corpus you'd otherwise need for other tax-saving instruments like PPF, ELSS, or a tax-saver FD.

Also Read - Post Office RD Interest Rate 2026: Latest Update with Tax Benefit

TDS Rules on FD and RD interest (FY 2026-27)

Both FD and RD interest are treated identically for TDS purposes under Section 393  (corresponding to Sec 194A):

• Threshold: No TDS if total interest from a bank, post office or cooperative society in a year is up to Rs 50,000 for individuals below 60, and up to Rs 1,00,000 for senior citizens.
• Rate: 10% if PAN is furnished, 20% if it is not.
• Aggregation: The threshold is calculated bank-wide, not branch-wise or account-wise - core banking systems pool all your FDs and RDs under the same PAN before applying the limit. Splitting deposits across branches of the same bank will not help you avoid TDS.
• Form 121 (Corresponding 15G/15H): If your total income is below the basic exemption limit, submit Form121 at the start of the year to stop TDS deduction at source.
• TDS is not final tax: Even if no TDS is deducted, or TDS is deducted at 10%, you must still report the full interest income in your ITR and pay any shortfall based on your actual slab rate.

Which one should you choose, with 7 months left in FY 2026-27?

• You have a lump sum sitting idle right now (bonus, maturity proceeds, year-end savings) → an FD earns more total interest because the entire amount works for you from day one.
• You want to build a monthly saving habit from salary or business income → an RD suits you better, even though it earns less than an FD of the same tenure and rate.
• You're still under the old tax regime and haven't used your Section 80C limit → a 5-year tax-saver FD is worth considering before 31 March, keeping the 5-year lock-in and taxable-interest caveat in mind.
• You've already moved to the new tax regime → 80C is irrelevant to you; choose FD or RD purely on liquidity needs and rate, since both are taxed identically at slab rate either way.
• You want to avoid TDS complications → keep an eye on the Rs 50,000 / Rs 1,00,000 aggregate threshold across all your deposits with a bank, and file Form 121 if eligible.

In short: FD and RD are not really competing products - they solve different problems. The "better" one depends on whether you're deploying money you already have, or building money you don't have yet.

FAQs

Is FD or RD better for tax saving?

Only a 5-year tax-saver FD qualifies for a Section 80C deduction, up to Rs 1.5 lakh a year, and only under the old tax regime. Regular FDs and all RDs offer no upfront tax deduction — interest from both is fully taxable at slab rate.

What is the TDS threshold on FD and RD interest for FY 2026-27?

TDS applies once interest from a bank, post office or cooperative society crosses Rs 50,000 in a year for individuals below 60, and Rs 1,00,000 for senior citizens, deducted at 10% with PAN and 20% without.

Can I avoid TDS on FD or RD interest?

Yes — if your total income is below the basic exemption limit, submit Form121  15to the bank at the start of the financial year.

Does TDS deduction mean I don't have to pay tax on FD or RD interest?

No. TDS is only provisional. You must still report the full interest under "Income from Other Sources" in your ITR and settle any balance tax based on your slab rate.

Which is better, FD or RD, for someone starting now with 7 months left in FY 2026-27?

A lump sum ready to invest works better in an FD, since the full amount earns interest from day one. If you're building savings from monthly income, an RD is the more disciplined choice, even though its maturity value will typically be lower than an FD at the same rate and tenure.