Are you confused between Fixed Deposit (FD) and Recurring Deposit (RD)? Wondering which one suits your financial goals better? Should you invest a lump sum or save monthly? This article answers all your questions by comparing FD and RD, helping you make a smart and informed investment decision.

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Introduction

When it comes to safe and reliable investment options, Fixed Deposits (FDs) and Recurring Deposits (RDs) are two of the most popular choices among conservative investors. Both options are offered by banks and financial institutions, and both provide guaranteed returns with minimal risk. However, they are not the same. If you're confused about which one to choose — FD or RD — this article will break down the differences between Fixed Deposit and Recurring Deposit to help you make an informed decision.

What Is a Fixed Deposit (FD)?

A Fixed Deposit (FD) is a financial instrument provided by banks or NBFCs (Non-Banking Financial Companies) where an investor deposits a lump sum amount for a fixed period at a predetermined interest rate. The interest is compounded periodically (monthly, quarterly, or yearly), and at the end of the term, the investor receives the principal along with the accumulated interest.

Key Features of Fixed Deposit:

One-time lump sum deposit
Fixed tenure (7 days to 10 years)
Fixed interest rate (usually higher than savings accounts)
Premature withdrawal may attract penalty
Offers cumulative (interest paid at maturity) or non-cumulative (periodic interest payout) options

What Is a Recurring Deposit (RD)?

A Recurring Deposit (RD) is a financial plan that allows an individual to deposit a fixed amount every month into their RD account for a specified tenure. It’s ideal for salaried individuals who want to develop a habit of saving regularly and earn interest on their monthly savings.

Key Features of Recurring Deposit:

Monthly fixed contributions
Tenure ranging from 6 months to 10 years
Fixed interest rate
Premature withdrawal penalties
Interest compounded quarterly and paid at maturity

FD vs RD: Key Differences at a Glance

Feature	Fixed Deposit (FD)	Recurring Deposit (RD)
Deposit Type	Lump sum, one-time	Monthly, fixed installments
Ideal For	People with surplus money	People with regular income
Interest Rate	Slightly higher than RD	Slightly lower than FD
Tenure	7 days to 10 years	6 months to 10 years
Interest Payout	Cumulative or non-cumulative	Paid at maturity
Minimum Deposit	₹1,000 (varies by bank)	₹100 or ₹500 per month (varies by bank)
Premature Withdrawal	Allowed with penalty	Allowed with penalty
Taxation	TDS applicable above ₹40,000 interest/year	Same as FD
Loan Against Deposit	Available	Available

Interest Rates Comparison

Interest rates for both FDs and RDs are fixed at the time of deposit and remain constant for the entire tenure. However, FDs generally offer slightly higher interest rates compared to RDs for the same tenure.

For example (rates as of 2025, may vary):

FD: 6.5% to 7.5% per annum
RD: 6.0% to 7.0% per annum

Note: Senior citizens often get an additional 0.25% to 0.50% interest rate.

Benefits of Fixed Deposit

Higher Interest Rates
FDs offer higher interest rates compared to savings or RD accounts, especially for longer tenures.
Safe Investment Option
FDs are considered a low-risk investment as they are not linked to the stock market and offer fixed returns.
Flexible Tenure and Payout Options
You can choose the tenure and select cumulative or non-cumulative interest payout based on your financial goals.
Loan Against FD
You can take a loan against your FD (up to 90% of its value) without breaking it.

Benefits of Recurring Deposit

Disciplined Saving
RDs promote regular saving habits, especially among salaried individuals and students.
Low Investment Requirement
You can start an RD with as little as ₹100 per month, making it suitable for beginners.
Guaranteed Returns
Like FDs, RDs also offer fixed returns, unaffected by market volatility.
Suitable for Future Goals
Ideal for planning short-term financial goals like school fees, a vacation, or festival shopping.

Which Is Better: FD or RD?

Choose FD if:

You have a lump sum amount that you want to invest.
You want higher interest rates.
You’re saving for a medium or long-term goal like buying a car or house.
You’re a retiree or senior citizen who prefers interest payouts for regular income.

Choose RD if:

You earn a monthly salary and want to save a fixed amount every month.
You want to build a savings habit.
You’re saving for short-term goals like festival shopping, school admission, or emergency fund.

Taxation on FD and RD

Both FDs and RDs are subject to taxation under the Income Tax Act.

TDS (Tax Deducted at Source):
- If total interest from all FDs/RDs in a year exceeds ₹40,000 (₹50,000 for senior citizens), 10% TDS is deducted.
- You can submit Form 15G/15H to avoid TDS if your total income is below taxable limit.
Taxable Income:
Interest earned on both FD and RD is added to your income and taxed as per your income tax slab.

How to Open an FD or RD?

Step-by-Step Process:

Choose a Bank or NBFC Compare interest rates, tenure options, and features.
Select Account Type Choose FD or RD based on your needs.
Complete KYC Process Submit documents like PAN, Aadhaar, address proof, and photographs.
Choose Tenure and Amount
- For FD: Deposit lump sum
- For RD: Choose monthly installment amount
Get Deposit Receipt A digital or physical receipt is provided for your investment.

Nowadays, both FD and RD can be opened online using mobile or internet banking, making the process quick and hassle-free.

Common FAQs

1. Can I withdraw my FD or RD early?

Yes, but premature withdrawal may result in a penalty or lower interest rate.

2. Is FD or RD better for students?

RD is better for students, as it encourages monthly savings with lower investment.

3. Can I have multiple FDs or RDs?

Yes. You can open multiple deposits with different tenures and amounts for better financial planning.

4. Are FD and RD safe?

Yes, both are safe investments, especially when deposited in government or reputed private banks.

Conclusion

In the battle of Fixed Deposit vs. Recurring Deposit, there is no single winner. The right option depends on your financial situation, investment goals, and income pattern. If you have a lump sum, FD is a great choice offering better returns and flexibility. If you want to save gradually, RD helps build a habit with disciplined savings.

Both FDs and RDs are low-risk, guaranteed return options, making them ideal for risk-averse investors. Consider your budget, goals, and timeline before choosing between the two — or better yet, use both together for a balanced and secure financial plan.

Fixed Deposit vs. Recurring Deposit: What’s the Difference?