RD vs FD vs SIP: Where Should ₹5,000 a Month Go?

Save ₹5,000 a month for 5 years and you put in ₹3,00,000. A Post Office RD at 6.7% turns that into a guaranteed ₹3,56,829. A bank RD at an illustrative 6.5% gives ₹3,54,954. An equity SIP might give ₹3,90,412 at 10% a year or ₹4,12,432 at 12%, but those returns are assumptions, not promises, and a bad five years could leave you with less than the RD.

You can run your own numbers in the RD calculator and the SIP calculator. Below, each option is worked out step by step, then compared after tax for someone in the 30% slab, with the TDS rules and a simple way to decide which money goes where.

The setup and the assumptions

• Amount: ₹5,000 at the start of every month for 60 months.
• Post Office RD: 6.7% a year, the rate for October–December 2026.
• Bank RD and FD: 6.5% a year. This is an illustrative rate; every bank sets its own and changes it often, so check yours.
• SIP: 10% and 12% a year, purely as assumptions. Equity fund returns are not guaranteed and can be negative.
• Tax: rules for Tax Year 2026-27 (FY 2026-27) under the Income-tax Act, 2025.

Post Office RD at 6.7%: the guaranteed baseline

The Post Office Recurring Deposit runs for 5 years (60 monthly instalments), starts at ₹100 a month in multiples of ₹10, and pays 6.7% a year for accounts opened in October–December 2026. The rate has been 6.7% since 1 October 2023, and the rate on the day you open the account stays for the full 5 years. Interest compounds every quarter. The RD calculator gives this growth:

How the ₹56,829 of interest builds up. Each instalment earns interest only for the months left until maturity, compounded quarterly at 6.7% ÷ 4 = 1.675% a quarter. Your first ₹5,000 stays in for 60 months (20 quarters) and grows to ₹5,000 × 1.01675 to the power 20 ≈ ₹6,970. Your last ₹5,000 stays in for one month (a third of a quarter) and grows to only about ₹5,028. Add up all 60 instalments this way and you get ₹3,56,829.

Rules worth knowing before you open one:

• Missed instalment: a fee of ₹1 for every ₹100 per month of delay, so ₹50 a month on a ₹5,000 RD. If you default more than four times, the account is treated as discontinued, though it can be revived within two months of the fourth default.
• Early closure: allowed only after 3 years, and then you get the post office savings rate (4% as of October 2026) instead of 6.7%.
• Loan: after 12 instalments and one year, up to 50% of the deposits, at 2 percentage points above the RD rate.

Bank RD at an illustrative 6.5%

A bank RD uses the same quarterly method. At 6.5%, ₹5,000 a month for 60 months becomes ₹3,54,954, with ₹54,954 of interest. That is ₹1,875 less than the post office at 6.7%, which shows how little a 0.2-point gap matters on this amount. Bank RDs are more flexible: you can choose tenures other than 5 years, many banks pay senior citizens a little more, and most allow early closure with a penalty that each bank sets.

Bank deposits are insured by DICGC up to ₹5 lakh per depositor per bank, principal and interest together. Post office deposits are Government of India schemes.

RD vs FD is really "monthly vs lump sum"

People often ask which is better, RD or FD. At the same bank and the same rate, neither product earns more per rupee per month. The difference is how long your money is invested.

Suppose you already had the full ₹3,00,000 today and put it in an FD at the same 6.5% for 5 years, compounded quarterly. The FD calculator gives ₹4,14,126, with ₹1,14,126 of interest, about twice the RD's interest.

The FD wins only because every rupee is invested for all 60 months. In the RD, the first instalment is in for 60 months and the last for 1, so on average your money is invested for about 30.5 months, roughly half as long. Half the time, roughly half the interest.

So the real question is not "RD or FD" but "do I have the lump sum?" If you get a bonus or sell something, an FD (or the post office 5-year Time Deposit, at 7.5% for October–December 2026) puts all of it to work at once. If you are saving from your salary, an RD is the FD equivalent for money you do not have yet.

SIP at 10% and 12%: higher, but not guaranteed

A SIP buys units of a mutual fund every month. The SIP calculator assumes a fixed yearly return, compounded monthly, with each instalment invested at the start of the month:

• At 10% a year: ₹3,90,412 (gain ₹90,412).
• At 12% a year: ₹4,12,432 (gain ₹1,12,432).
• At 5% a year: ₹3,41,447, below the Post Office RD.
• At 0%: just your ₹3,00,000 back. A loss is possible too.

Real equity returns arrive unevenly. A SIP can be down in year 4 and up sharply in year 5, or the other way round. Five years is a short horizon for equity, because there may not be time to recover from a fall just before you need the money. For more on this trade-off, read SIP vs FD: where should you put your money and our lumpsum vs SIP guide.

After tax: the 30% slab comparison

RD and FD interest is added to your income and taxed at your slab rate. In the 30% slab, with 4% cess, that is 31.2% (ignoring surcharge, which applies only above ₹50 lakh of income). So the RD's 6.7% is about 4.6% after tax. This example ignores the timing of tax, which in practice is due year by year as interest accrues.

Equity fund gains are taxed only when you sell. Units held more than 12 months are long-term: gains are taxed at 12.5%, but only above ₹1,25,000 a year. Units held 12 months or less are short-term, taxed at 20%. Cess of 4% applies to both. Every SIP instalment has its own 12-month clock, so if you sell everything at the end of month 60, the last 12 instalments are short-term.

1. SIP at 10%: long-term gain ₹87,061 (below ₹1,25,000, so no tax); short-term gain on the last 12 instalments ₹3,351, taxed at 20.8% = ₹697.
2. SIP at 12%: long-term gain ₹1,08,385 (no tax); short-term gain ₹4,047, tax ₹842.
3. Post Office RD: ₹56,829 × 31.2% = ₹17,731 tax.
4. Bank RD: ₹54,954 × 31.2% = ₹17,146 tax.
5. Bank FD (lump sum): ₹1,14,126 × 31.2% = ₹35,607 tax.

Two caveats. The ₹1,25,000 long-term exemption covers all your equity gains in a year, so if you have other gains, some SIP gains may be taxed. And if your total income is within the new regime's ₹12 lakh rebate limit (₹12.75 lakh for salaried people), you may pay no tax on RD interest at all; see new tax regime slabs with examples. Tax widens the gap in the SIP's favour far more for a high earner than for someone in a low slab.

TDS on RD and FD interest

Banks, co-operative banks and the post office deduct TDS only if the interest they pay you in a year is more than ₹50,000 (₹1,00,000 if you are 60 or older). The rate is 10% with your PAN, 20% without, and once you cross the limit it applies to the whole interest. If your total income is below the taxable limit, Form 15G (under 60) or 15H (60 and above) stops TDS.

In this example the yearly interest is far below ₹50,000. Even the ₹3 lakh FD earns about ₹19,980 in year 1, rising to ₹25,859 in year 5. But the limit counts all your deposits with that bank together, and no TDS does not mean no tax: in the 30% slab you still owe the full 31.2% when you file your return.

Risk, liquidity and tax side by side

A sensible rule of thumb

The right choice depends on when you need the money, not on which number is biggest.

• Emergency fund (3–6 months of expenses): keep it where you can reach it within a day, such as a savings account or an FD you can break. Not in equity, and not in a Post Office RD that you cannot close for 3 years.
• Goals within about 3 years (a course fee, a wedding, a bike or car down payment): RD or FD. You know exactly what you will have on the date.
• Goals 3–7 years away, like this 5-year example: mostly RD or FD if the date is fixed. Some people put part of the monthly amount in a SIP, accepting that it may be worth less than the RD when they need it.
• Goals 7 years or more away (retirement, a child's college): an equity SIP has time to recover from bad years, and the after-tax gap in its favour can be large. Long-term tax-free options like the PPF also fit here.

This article is general information based on rules and rates as of October 2026, not tax or investment advice; your own mix should depend on your income, goals and comfort with risk.

Frequently asked questions

What is the Post Office RD interest rate in 2026?

6.7% a year, compounded quarterly, for every quarter of 2026 including October–December. It has been 6.7% since 1 October 2023. ₹100 a month for 5 years becomes ₹7,137.

RD or FD: which gives more interest?

At the same rate, an FD earns more in rupees only because the whole amount is invested from day one. If you are saving monthly from salary, compare RD rates between banks and the post office rather than RD against FD.

RD or SIP for 5 years: which is better?

The RD's amount is certain; the SIP's is not. At an assumed 10–12% a SIP ends higher, but in a weak market it can end below the RD. If you need a known amount on a fixed date, an RD is the safer fit.

Can I withdraw a Post Office RD before 5 years?

Only after 3 years, and you then earn the post office savings rate (4%) instead of 6.7%. Before that, a loan of up to 50% of your deposits is possible after 12 instalments.

Is RD interest tax-free?

No. RD and FD interest is fully taxable at your slab rate, including the Post Office RD. Only schemes such as PPF and Sukanya Samriddhi have tax-free interest.

Sources: Department of Economic Affairs office memorandum on small savings interest rates, 30 September 2026; National Savings (Recurring Deposit) Scheme, 2019; Income-tax Act, 2025; CBDT; DICGC.