CAGR on FD vs RD: Which is better among the two investments?

When it comes to safer investment choices in India, FD (Fixed Deposits) and RD (Recurring Deposits) are the most popular options that offer guaranteed returns. Often, people want to confirm which investment strategy offers better returns at the end of the tenure before making their decision.

Returns from either FD or RD can be easily compared in terms of CAGR, which stands for Compound Annual Growth Rate. In this article, we will compare both FD and RD using CAGR. The following article explains what CAGR is, how it is calculated for FD and RD, and helps find out which performs better.

If you want to calculate CAGR for your investment, you can try our tool: cagrcalculator.net

What is CAGR?

Compound Annual Growth Rate is a measure that shows the average annual growth rate of an investment while considering the compounding effect. CAGR helps in comparing investments like FD and RD, even though they have different cash flow structures.

What are FD and RD saving schemes offered by banks in India?

FD: It is a lump sum saving scheme where you deposit a single amount to earn a predetermined interest rate for a fixed tenure. The interest rate remains constant throughout the period.

RD: Instead of depositing money at once, it is a monthly saving scheme. In RD, you deposit a fixed amount every month, and each installment earns interest separately.

Try our RD calculator to plan your recurring deposit: rdcalculator.in

Example: Calculating CAGR on FD and RD for 3 years

In a Fixed Deposit, the entire principal is invested upfront. Generally, interest rates are compounded annually or quarterly. For example, if Rs 1,00,000 is deposited in an FD scheme at an interest rate of 7% (assumption—it may vary from 6.5% to 7.5%), the maturity amount using a reverse CAGR calculator (cagrcalculator.net/reverse-cagr-calculator/) would be Rs 1,22,504.

In the case of RD, let’s divide Rs 1,00,000 into monthly deposits over 3 years. The monthly deposit would be approximately Rs 2,778, keeping the same interest rate of 7%. If we calculate the maturity value using our RD calculator, the amount comes to around Rs 1,11,504.

Comparing the results over 3 years, it is clear that FD stands out as the winner. The maturity value of FD is Rs 1,22,504, whereas the maturity value of RD is slightly lower at Rs 1,11,504. Returns from FD are higher than RD. So, for better returns, if possible, go for FD.

Conclusion: FD VS RD Return

FD and RD serve different purposes. If you can afford to deposit a large amount at once, then FD is a good choice. Otherwise, go for RD. Returns from FD are generally higher than RD, so for better returns, FD is preferable. On the other hand, RD helps you gradually build wealth while maintaining financial discipline through monthly savings.