FD vs RD vs PPF: How Each Compounds, and What the Calculators Assume

Fixed deposits, recurring deposits, and PPF are all built on compound interest, but each applies it to a genuinely different shape of deposit — one lump sum, monthly instalments, or a fixed annual contribution locked in for 15 years. This is a comparison of how each one mechanically works and what its calculator on this site simplifies — not a ranking of which to choose, which depends on your own liquidity needs, tax situation, and goals.

Three different deposit patterns

• FD (Fixed Deposit): one lump sum, deposited once, left untouched for a chosen tenure.
• RD (Recurring Deposit): a fixed amount deposited every month for a chosen tenure — you're building up the principal gradually rather than committing it all upfront.
• PPF (Public Provident Fund): a flexible annual contribution — anywhere from ₹500 to ₹1,50,000 a year — for a fixed minimum term of 15 years.

Because the underlying deposit pattern differs, the compounding math for each has to work differently too, even at an identical interest rate.

How each actually compounds

FD uses the standard compound interest formula on a single lump sum: A = P × (1 + r/(n×100))^nt, where n is the compounding frequency you choose. Most Indian bank FDs compound quarterly by default, even though the rate is quoted per year.

RD is more involved, because each of the 12+ monthly instalments sits in the account for a different length of time — the first instalment earns interest for nearly the whole tenure, the last barely earns any. Banks use a standard formula (from the Indian Banks' Association) that compounds quarterly across the whole schedule rather than computing every instalment separately: M = P × [(1 + i)ⁿ − 1] ÷ [1 − (1 + i)^−1/3], where i is the quarterly rate and n is the number of quarters.

PPF compounds annually, once a year, on whatever balance exists at that point. The calculator here assumes your full annual contribution goes in at the very start of the year, then interest is added on the resulting balance at year-end — a standard simplification. Real PPF interest is actually calculated monthly, on the lowest balance in the account between the 5th and the end of each month, so depositing after the 5th of a month costs you that month's interest on that amount — a wrinkle only worth worrying about if you're not depositing your full year's contribution in one go, early in the year.

A mechanics comparison at the same rate

To isolate the effect of the deposit pattern itself, here's FD and RD run at an identical 7% hypothetical rate over the same 5-year period (independently verified, not a claim about either product's actual current rate):

The much larger FD interest figure isn't because FDs are "better" — it's because the FD's entire ₹1,00,000 was earning interest from day one, while the RD's money arrived gradually across five years and each instalment only earned interest for the time it was actually in the account. Comparing the two on total interest earned alone, without accounting for how much capital each actually had invested and for how long, isn't a fair like-for-like comparison — which is exactly why this is presented as a mechanics illustration, not a recommendation.

PPF can't be slotted into the same 5-year comparison at all, because of its own defining mechanical constraint: a mandatory minimum 15-year term. At the same hypothetical 7%, ₹12,000 contributed at the start of each year for the full 15 years grows to roughly ₹3,23,000 — a figure only reachable because PPF locks the money up for three times as long as the FD/RD comparison above, not because PPF compounds more favorably.

Fixed rate vs. a rate that can change mid-term

Once you book an FD or open an RD, the rate you were quoted is fixed for that account's entire tenure — a standard cumulative FD or RD doesn't change rate partway through. PPF is different: the government reviews and re-notifies the PPF rate every quarter, so while each quarter's rate is fixed and known, the rate that applies to your account's growth two or ten years from now isn't locked in today the way an FD's is — it's simply whatever gets notified each quarter going forward. In practice the PPF rate has been unusually stable (unchanged at 7.1% since April 2020), but structurally it can move in a way a booked FD or RD cannot. For the actual current PPF rate, see the dated, sourced rate section on the PPF Calculator's own page rather than this guide, which sticks to mechanics that don't change when rates do.

Lock-in and access before maturity

• FD: premature withdrawal is generally possible, typically at a reduced rate or with a penalty — exact terms are set by each bank.
• RD: a missed or late monthly instalment usually incurs a penalty, and closing the account early is more restrictive than for an FD — again, terms vary by bank.
• PPF: the most structured of the three. Partial withdrawals are allowed from the 7th year onward, and loans against the balance from the 3rd year, both within limits set by PPF rules — otherwise the full 15-year term applies before the balance is freely available.

What each calculator simplifies

• FD Calculator: assumes the rate stays fixed for the whole tenure (true for a standard cumulative FD) and doesn't model TDS on the interest or early-withdrawal penalties.
• RD Calculator: assumes every instalment is paid on schedule with no missed payments, and likewise doesn't model TDS.
• PPF Calculator: assumes one lump contribution at the start of each year rather than the real monthly-lowest-balance rule, and doesn't model partial withdrawals, loans against the account, or extensions beyond the initial 15-year term in 5-year blocks.

None of the three factor in taxes on the interest earned, which differ across the three instruments and depend on your own tax situation — check current rules with a tax professional rather than any of these calculators for that part of the decision.

For the compounding mathematics underneath all three — why quarterly beats annual compounding, what "effective annual rate" means, and how far the Rule of 72 shortcut can be trusted — see the compound vs. simple interest guide. And for a monthly-contribution product that isn't a fixed-rate deposit at all, see how a SIP differs in kind, not just in rate.