SIP vs RD: which is better for your monthly savings?

You can spare a fixed amount every month and you want it to grow. The bank or post office offers a recurring deposit; a friend says start a SIP. Both take money from your account on a fixed date, so the choice looks similar. It is not: one gives you a number you can count on, the other aims for more and asks you to accept ups and downs.

This guide compares SIP vs RD on returns, tax, risk and flexibility, with real numbers, and shows which one suits which goal. The RD calculator beside the guide follows along; the SIP calculator gives the SIP side for your own numbers.

SIP vs RD: the difference in one table

An RD (recurring deposit) is a deposit with a bank or the post office. You pay the same amount every month, and it earns a fixed interest rate, compounded every quarter. A SIP (systematic investment plan) is a way of buying mutual fund units every month; with an equity fund, the value moves with the stock market.

What	RD	Equity SIP
Return	Fixed: Post Office 5-year RD 6.7%; banks about 6–7%	Not fixed; moves with the market
Risk	Very low	Can fall, sometimes sharply, in the short term
Tax	Interest taxed at your slab every year	12.5% on long-term gains above ₹1.25 lakh a year
Stopping early	Penalty or lower rate; missed months cost a fee	Stop any time; exit load (often 1%) within a year
Best for	Goals within about 3 years	Goals 5 years or more away

SIP vs RD returns: ₹3,000 a month for 5 years

Take Anitha, a lab technician in Villupuram. She can set aside ₹3,000 a month. In a Post Office RD at 6.7% for 5 years, she deposits ₹1,80,000 and gets back ₹2,14,097: ₹34,097 of interest, known on day one.

The same ₹3,000 a month in an equity fund SIP for 5 years could look like this, depending on how the market does:

At 12% the SIP is about ₹33,000 ahead. In a weak five years it can end up level with the RD or below it. That is the trade: the RD removes the bad outcomes, and with them the better ones.

Mutual fund returns are not guaranteed, and past returns do not promise future ones. The 12% and 6% figures are assumptions for comparison, not forecasts.

Which is better for 10 years?

Time is where the gap grows. Over 10 years, ₹3,000 a month adds up to ₹3,60,000 of your own money.

₹3,000 a month for 10 years	Value at the end	Gain
Bank RD at 6.5%	₹5,06,964	₹1,46,964
Equity SIP at an assumed 12%	₹6,97,017	₹3,37,017

The SIP’s gain could be more than twice the RD’s. Over ten years, an equity fund has more time to recover from falls, which is why long goals (a child’s college, retirement) usually lean towards SIPs.

An RD protects a sum you will need soon. A SIP grows a sum you won’t need for years.

Tax: where RDs lose more than you think

RD interest is added to your income and taxed at your slab every year, plus 4% cess. In Anitha’s 5-year RD, at a 20% slab, about ₹7,092 of her ₹34,097 interest goes in tax. Banks also deduct 10% TDS once your interest from that bank passes ₹50,000 in a year (₹1 lakh for those 60 and over).

Her SIP at 12% would have a gain of about ₹67,459 after 5 years. Equity fund gains held over a year are taxed at 12.5%, and only on gains above ₹1.25 lakh in a financial year. Her whole gain is under that limit, so if she has no other gains that year, she would pay no tax on it. Sold within a year, gains are taxed at 20%.

Inflation matters too. With prices rising at around 5 to 6% a year, a 6.7% RD taxed at 20% keeps you roughly level with rising prices, not much ahead.

RD vs SIP for short term: when the RD wins

For goals one to three years away, the RD is usually the better choice. A school fee due next June, a wedding in two years, a two-wheeler next year: here, a market fall at the wrong moment could leave you short, and there is no time to recover.

For 3 years at 6.4% (a typical bank rate), ₹3,000 a month becomes ₹1,19,286, and you know it in advance. A SIP might give more or less; for a fixed bill, certainty is worth more.

The RD also suits:

• people saving their first emergency fund (though a liquid fund or savings account gives faster access),
• anyone who would stop a SIP in panic during a fall, and
• money you must not risk at all.

How to use both, and switch sensibly

You don’t have to choose one forever. A simple split works for many families:

1. Keep near goals (within 3 years) in an RD or FD.
2. Put long goals (5 years and more) in an equity SIP, ideally a simple index or flexi-cap fund.
3. As a SIP goal comes within two years, move that money step by step into an RD, FD or a debt fund.

You can’t convert an RD into a SIP. To switch, let the RD mature (or close it, accepting a lower rate), then start a SIP from your bank account. If you are new to SIPs, start small and raise it once you have seen a market fall without stopping. Our guide on SIP mistakes covers the habits that matter most.

Questions

Which is better, SIP or RD?

It depends on when you need the money. For goals within about 3 years, an RD is better because its return is guaranteed. For goals 5 years or more away, an equity SIP has usually done better and is taxed more lightly, though its returns are not guaranteed.

Is SIP safer than RD?

No. An RD is safer: the post office RD is backed by the government, and bank deposits are insured up to ₹5 lakh per depositor per bank. A SIP in an equity fund can fall in value, especially over short periods.

SIP vs RD for 5 years: which gives more?

At an assumed 12%, ₹3,000 a month in a SIP could grow to about ₹2,47,459, against ₹2,14,097 in a 6.7% Post Office RD. In a weak market the SIP could end level with the RD or below it.

What is the RD interest rate now?

The Post Office 5-year RD pays 6.7%, compounded quarterly (India Post, checked 18 October 2026). Bank RD rates are usually the same as the bank’s FD rate for that period, roughly 6 to 7% for most big banks, with about 0.5% more for senior citizens.

Is RD interest taxable?

Yes. RD interest is added to your income and taxed at your slab every year. Banks deduct 10% TDS when your interest from that bank passes ₹50,000 in a financial year, or ₹1 lakh if you are 60 or older.

SIP vs RD vs FD: which should I choose?

An FD suits a lump sum you already have; an RD suits a fixed monthly amount for a near goal; a SIP suits a monthly amount for a long goal. Many people use all three for different goals.