Difference Between Fixed Deposit (FD) and Recurring Deposit (RD)

When it comes to safe and reliable investment options in India, Fixed Deposits (FD) and Recurring Deposits (RD) are among the most popular choices. Both are offered by banks and post offices and are considered low-risk investment instruments. However, they serve different financial needs and suit different types of investors.

If you are confused about which one to choose, this blog will help you understand the key differences between FD and RD, their features, benefits, and which option is better for you.

What is a Fixed Deposit (FD)?

A Fixed Deposit is a lump-sum investment where you deposit a fixed amount of money for a predetermined period at a fixed interest rate. The money remains locked in for the chosen tenure, and you receive the principal along with interest at maturity.

Key Features of FD

• One-time lump sum investment

• Fixed interest rate throughout the tenure

• Tenure ranges from 7 days to 10 years

• Interest can be paid monthly, quarterly, or at maturity

• Premature withdrawal allowed (with penalty)

Who Should Choose FD?

• People with surplus funds

• Retired individuals looking for stable income

• Conservative investors

• Those who want guaranteed returns

What is a Recurring Deposit (RD)?

A Recurring Deposit allows you to invest a fixed amount every month for a specific period. It is designed to encourage regular savings and is ideal for salaried individuals or those with a steady monthly income.

Key Features of RD

• Monthly investment of a fixed amount

• Fixed interest rate similar to FD

• Tenure usually ranges from 6 months to 10 years

• Encourages disciplined saving habits

• Lump sum received at maturity

Who Should Choose RD?

• Salaried individuals

• First-time investors

• People with monthly income but no lump sum

• Those saving for short- or medium-term goals

FD vs RD: Key Differences Explained

FeatureFixed Deposit (FD)Recurring Deposit (RD)Investment StyleOne-time lump sumMonthly installmentsMinimum InvestmentHigher (varies by bank)Lower (can start from ₹500)Ideal ForPeople with surplus moneySalaried or small saversInterest CalculationOn full amount from startOn monthly depositsLiquidityPremature withdrawal allowedPremature closure possibleDiscipline RequiredLowHighMaturity AmountDepends on lump sum & tenureAccumulated monthly savings

Interest Rates: FD vs RD

Generally, FD and RD interest rates are similar, but returns from FD are usually higher because the entire amount earns interest for the full tenure. In RD, each monthly deposit earns interest for a different duration, resulting in slightly lower overall returns.

Taxation on FD and RD

Both FD and RD are taxable investments.

• Interest earned is added to your income

• Tax deducted at source (TDS) if interest exceeds the prescribed limit

• Senior citizens get higher interest rates and higher TDS exemption limits

• Tax-saving FD (5-year FD) offers deduction under Section 80C

• RD does not offer tax benefits

FD or RD: Which is Better?

There is no one-size-fits-all answer. The right option depends on your financial situation and goals.

Choose FD if:

• You have a lump sum available

• You want higher returns

• You are risk-averse

• You want predictable income

Choose RD if:

• You want to build savings gradually

• You have a monthly income

• You want to develop saving discipline

• You are planning for future expenses like education or travel

FD and RD for Financial Planning

Both FD and RD play an important role in a balanced financial plan:

• FD helps preserve capital and generate stable returns

• RD helps inculcate regular saving habits

• Both are ideal for short- to medium-term goals

• They act as a safety net in uncertain market conditions

For long-term wealth creation, however, investors may also consider diversifying into options like mutual funds, real estate, or equities.

Conclusion

Both Fixed Deposits and Recurring Deposits are safe, reliable, and easy-to-understand investment options. The main difference lies in how you invest the money—lump sum versus monthly savings.

If you have spare funds and want guaranteed returns, FD is a better choice. If you want to save small amounts regularly and build a corpus over time, RD is ideal.

Understanding the difference between FD and RD will help you make smarter financial decisions and align your investments with your financial goals.