When it comes to secure investments in India, the Post Office Fixed Deposit (FD) and Post Office Recurring Deposit (RD) are two of the most reliable options. But if you have ₹5 lakh to invest, which one will give you higher returns? Let’s break it down with a detailed comparison, real calculations, and expert insights to help you make an informed decision.
Post Office FD vs RD: Where Will You Earn More Profit?
| Feature | Post Office Fixed Deposit (FD) | Post Office Recurring Deposit (RD) |
|---|---|---|
| Interest Rate (2025) | 7.5% (5-year FD) | 6.7% (5-year RD) |
| Compounding Frequency | Quarterly | Quarterly |
| Investment Type | Lump sum | Monthly installments |
| Maturity Amount (for ₹5 lakh) | ₹7,24,450 (5 years) | ₹1,97,333 (5 years) |
| Risk Level | Very low | Very low |
| Tax on Interest | Taxable | Taxable |
| Withdrawal Flexibility | Premature withdrawal allowed with penalty | Premature withdrawal allowed with penalty |
If you have ₹5 lakh to invest, a Post Office Fixed Deposit (FD) is the best option, offering higher returns of ₹7,24,450 in 5 years. On the other hand, a Post Office Recurring Deposit (RD) is ideal for those who prefer monthly investments, but it yields much lower returns.
For safe and guaranteed returns, the Post Office FD is the clear winner. However, make sure to align your choice with your financial goals.
Understanding Post Office Fixed Deposit (FD)
A Post Office Fixed Deposit (FD) works just like a bank FD. You deposit a lump sum amount for a fixed tenure and earn interest compounded quarterly.
Post Office FD Interest Rates (2025)
The latest interest rates for Post Office FDs are:
- 1-year FD: 6.9% p.a.
- 2-year FD: 7.0% p.a.
- 3-year FD: 7.1% p.a.
- 5-year FD: 7.5% p.a. (Tax-saving FD option)
Maturity Calculation for ₹5 Lakh (5-Year FD at 7.5%)
The formula for compound interest is: A=P×(1+rn)ntA = P \times \left(1 + \frac{r}{n}\right)^{nt} Where:
- A = Maturity amount
- P = Principal (₹5,00,000)
- r = Annual interest rate (7.5% or 0.075)
- n = Compounding frequency (4 times a year for quarterly compounding)
- t = Tenure (5 years)
Applying these values: A=5,00,000×(1+0.0754)4×5A = 5,00,000 \times \left(1 + \frac{0.075}{4}\right)^{4 \times 5} A≈7,24,450A ≈ 7,24,450
So, after 5 years, your ₹5 lakh investment will grow to ₹7,24,450.
see also: Monthly Income Scheme MIS: Invest up to 15 lakhs, get this much money every month!
Understanding Post Office Recurring Deposit (RD)
A Post Office Recurring Deposit (RD) allows you to invest a fixed amount every month and earn interest compounded quarterly. It’s a good option if you don’t have a lump sum but can invest regularly.
Post Office RD Interest Rate (2025)
The current interest rate is 6.7% per annum.
Maturity Calculation for ₹5 Lakh (Invested Over 5 Years at 6.7%)
You will deposit ₹8,333 per month (₹5,00,000 divided over 60 months). The formula for RD maturity is: A=P×(1+r/n)nt−1r/nA = P \times \frac{(1 + r/n)^{nt} – 1}{r/n} Where:
- A = Maturity amount
- P = Monthly investment (₹8,333)
- r = Annual interest rate (6.7% or 0.067)
- n = Compounding frequency (4 times a year)
- t = Tenure (5 years)
Applying these values: A≈1,97,333A ≈ 1,97,333
After 5 years, your total investment in RD will grow to only ₹1,97,333.
Which is the Better Investment?
| Investment Type | Maturity Amount | Profit Earned |
|---|---|---|
| Post Office FD (5 years at 7.5%) | ₹7,24,450 | ₹2,24,450 |
| Post Office RD (5 years at 6.7%) | ₹1,97,333 | ₹47,333 |
- If you have a lump sum amount, Post Office FD is the better choice.
- If you prefer monthly investments, RD is suitable, but returns are much lower.
- FD gives higher returns because the entire ₹5 lakh earns compound interest from day one.
Tax Implications
- Interest earned on both FD and RD is taxable under “Income from Other Sources”.
- No TDS is deducted by the Post Office, but you must report the income.
- To save taxes, you can invest in a 5-year Post Office FD (Tax Saver FD) under Section 80C, allowing deductions up to ₹1.5 lakh.
see also: What is a Fixed Deposit? A Complete Guide for 2025
Post Office FD vs RD FAQs
1. Can I withdraw money from a Post Office FD before maturity?
Yes, but premature withdrawals come with a penalty, and interest is paid at a lower rate.
2. Is Post Office FD or RD better?
FD is better for higher returns, while RD is good if you want to invest monthly.
3. Can I open both FD and RD in the post office?
Yes, you can have both accounts simultaneously.
4. Is the interest rate in the Post Office fixed?
Yes, for FD. However, RD interest rates can change periodically.
5. What is the minimum deposit for Post Office RD?
₹100 per month, with no maximum limit.
