FD vs RD: Where Should You Invest ₹7 Lakh for 5 Years to Get Better Returns?

If you have ₹7 lakh at your disposal and are looking to invest it securely for the next five years, you might find yourself wondering—should you go for a Fixed Deposit (FD) or opt for a Recurring Deposit (RD)? Both are popular and trusted investment instruments in India, offering guaranteed returns with low risk. However, the way they work—and the returns they offer—are quite different.

Let’s break down the key differences, pros, cons, and which one might be a better fit depending on your financial goals.

Understanding FD: Lump Sum Investment with Steady Returns

A Fixed Deposit (FD) is a financial product where you invest a lump sum amount for a fixed period at a predetermined interest rate. In this case, if you have ₹7 lakh available now, you can invest the entire amount in an FD for 5 years. The money remains locked in during this tenure, and you earn regular interest on it, which is either paid out periodically or added to the maturity amount.

Benefits of FD:

• Safe and stable returns

• Higher interest rates compared to savings accounts

• Suitable for those who already have a large corpus

• Senior citizens often get higher interest rates

Currently, major banks like SBI are offering FD interest rates ranging from 3.05% to 6.60% for regular customers. For senior citizens, this can go up to 7.10%. If you invest ₹7 lakh in an FD with an average interest rate of around 6.8%, you will receive approximately ₹9.66 lakh after 5 years—a profit of ₹2.66 lakh.

Understanding RD: Small Monthly Investments with Disciplined Saving

A Recurring Deposit (RD) works differently. Instead of a lump sum, you deposit a fixed amount every month for a set period—five years, in this case. It is ideal for salaried individuals or those who prefer systematic, small-scale savings rather than investing a large amount at once.

Benefits of RD:

• Encourages regular savings

• Easier on your monthly budget

• Ideal for people without lump sum funds

• Guaranteed returns like FD, though slightly lower

The current interest rate on a Post Office RD stands at approximately 6.7% annually, compounded quarterly. If you invest ₹7 lakh in an RD over five years in equal monthly installments, your final maturity amount would be around ₹8.34 lakh. That translates to a gain of ₹1.32 lakh—lower than the returns from an FD.

Which One is Right for You?

Choose FD if:

• You have a lump sum amount (like ₹7 lakh) ready to invest

• You want higher interest earnings

• You’re looking for a one-time hassle-free investment

• You don’t need access to the money for the entire period

Choose RD if:

• You prefer monthly contributions

• You want to build the habit of disciplined savings

• You don’t have access to a lump sum amount

• You’re okay with slightly lower returns

Final Thoughts

Both FD and RD are excellent low-risk investment options and serve different purposes based on your financial situation. If maximizing returns is your top priority and you have ₹7 lakh available, then FD will offer better gains over five years. On the other hand, if you prefer to invest gradually, RD is a great tool to grow your savings without financial pressure.

Important Note: Interest earned from both FD and RD is taxable. It’s advisable to consult a financial advisor before making a decision to ensure the option you choose aligns with your long-term financial goals.