Fixed and recurring deposits are different instruments
A fixed deposit takes a single lump sum for a fixed term at a fixed rate. Every rupee earns for the full tenure, which is why an FD's maturity value looks large relative to what you put in.
A recurring deposit takes a fixed monthly amount. Each instalment earns only for the time remaining, so the final month's deposit earns almost nothing. An RD's effective return is therefore lower than an FD at the same quoted rate, which is not a flaw — it reflects that your money was invested for less time on average.
Most Indian banks compound deposits quarterly, which is the default above.
The post-tax number is the real one
This is the part most deposit calculators omit, and it changes the answer.
Deposit interest is normally added to your income and taxed at your slab rate — every year as it accrues, not only when you withdraw. For someone in the 30% bracket, a 7% deposit returns roughly 4.9% after tax.
Now compare that against inflation. With inflation in the 5–6% range, a higher-bracket taxpayer holding a 7% deposit is losing purchasing power in real terms. The rupee figure grows; what those rupees buy shrinks.
This does not make deposits useless. It makes them the wrong tool for long-term wealth building and the right tool for capital you must not lose.
What deposits are genuinely good for
Emergency funds. The job is availability, not return. Money you might need next week has no business in a volatile asset, and the real loss to inflation over a few months is trivial compared with being forced to sell equity at a bad moment.
Goals under three years. A deposit maturing when you need it is worth more than an investment that might be down 30% that month.
The stable portion of a portfolio. Something that does not fall when equities do has value beyond its return, because it is what you spend from instead of selling at the bottom.
Practical points worth knowing
Deposit insurance in India covers up to ₹5 lakh per depositor per bank, including principal and interest. If you hold more than that, spreading across banks converts an uninsured position into an insured one at no cost.
Premature withdrawal usually carries a penalty of around 0.5–1% off the applicable rate. Laddering — several smaller deposits maturing at different times — preserves access without breaking anything.
Senior citizens typically receive an additional 0.25–0.75% on deposit rates, which over a large sum is worth checking.
Rates, tax rules and insurance limits change. Confirm current figures with your bank and your own tax position with a qualified professional.
Frequently asked questions
How is FD maturity calculated?
Most Indian banks compound quarterly, so maturity equals principal times (1 + rate/4) raised to the power of four times the number of years. A Rs 10,000 deposit at 7% for five years matures at about Rs 14,148.
Why does an RD return less than an FD at the same rate?
Because each monthly instalment earns interest only for the time remaining. The first deposit earns for the full tenure while the last earns almost nothing, so the average time invested is roughly half that of a lump-sum FD.
How is deposit interest taxed?
It is added to your income and taxed at your slab rate as it accrues, not only on withdrawal. For a 30% bracket taxpayer, a 7% deposit yields about 4.9% after tax - often below inflation, which is a real loss in purchasing power.
Is my fixed deposit insured?
In India, deposits are insured up to Rs 5 lakh per depositor per bank, covering principal and interest together. Spreading larger balances across banks converts an uninsured position into an insured one at no cost.