The structural difference that drives everything else
An FD is a single lump-sum deposit that sits untouched, earning interest on the full amount for the entire tenure. An RD is a series of monthly deposits building up over time — the first installment earns interest for nearly the whole tenure, but the last installment barely earns any interest at all, since it's deposited right before maturity. Both compound quarterly in the standard Indian bank convention, but an RD's gradual deposit schedule means its effective interest-earning principal is always smaller than an FD's for the same total money committed.
A worked example — same rate, same rough total
A ₹1,00,000 FD at 7% p.a. for 12 months matures to ₹1,07,185.90 — ₹7,185.90 in interest. An RD depositing ₹8,333/month at the same 7% p.a. for the same 12 months totals ₹99,996 deposited (essentially the same ₹1,00,000) but matures to only ₹1,03,846.95 — just ₹3,850.95 in interest, roughly half of the FD's interest for almost the identical total amount invested and the identical rate.
Why this doesn't mean RD is a worse product
This comparison isn't really "FD beats RD" — it's comparing two different financial situations. FD suits someone who already has a lump sum sitting idle. RD suits someone who doesn't have a lump sum yet but can commit to saving a fixed amount every month — for that person, the realistic alternative isn't an FD (they don't have ₹1,00,000 to deposit today), it's leaving the money in a lower-interest savings account or not saving it in a disciplined way at all. RD's lower interest relative to an equivalent FD is simply the mathematical consequence of the money not existing yet at the start of the tenure.
When to actually choose between them
Choose FD when you already have a lump sum you won't need for the deposit's tenure and want the highest guaranteed return on it. Choose RD when your saving happens through monthly income rather than an existing lump sum, and you want a disciplined, guaranteed-return way to build one up. If you have both a lump sum and ongoing monthly savings capacity, using an FD for the lump sum and an RD for the monthly amount typically earns more combined interest than parking everything in a single RD and waiting to accumulate it there instead.