Compare a bank Fixed Deposit (FD) against a Recurring Deposit (RD). Use our real-time interactive calculator to compare interest growth, principal accumulation, tax rules, and wealth metrics.
Fixed Deposit returns compound faster on lump sum.
A Fixed Deposit (FD) is a secure and stable savings tool offered by banks and non-banking financial institutions (NBFCs). Under an FD scheme, you deposit a specific lump-sum amount of money today for a designated duration (ranging from 7 days up to 10 years) at a fixed interest rate.
Since the entire sum is deposited at the start, it earns interest for the complete duration, which compounds quarterly. This results in high total interest yields. FDs are completely isolated from market risks and guarantee the maturity value.
A Recurring Deposit (RD) is a savings scheme designed to encourage regular saving habits. Instead of depositing a lump sum, you commit to depositing a fixed, pre-determined amount every month for a chosen tenure (ranging from 6 months up to 10 years).
RDs are ideal for salaried professionals who do not have a large pool of capital but wish to save a fraction of their income monthly. Interest is calculated based on the months each installment sits in the account and compounds quarterly at the same rates as FDs.
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
|---|---|---|
| Investment Pattern | One-time lump sum | Fixed monthly installments |
| Interest Rates | Generally identical to RD rates (6.0% - 7.5% depending on tenure) | Identical to FD rates for the matching tenure |
| Interest Accumulation | Highest (entire sum earns interest from day one) | Lower (installments earn interest for remaining tenure) |
| Compounding Frequency | Quarterly (standard) or Cumulative options | Quarterly (compounded based on deposit dates) |
| Minimum Deposit | Typically ₹1,000 lump sum | Starts as low as ₹100 per month |
| Flexibility of Amount | Fixed (cannot add additional capital to the same account) | Fixed monthly installment (cannot change mid-way) |
| Liquidity & Withdrawals | Moderate (allow premature closure with a 0.5% - 1% penalty) | Moderate (allow premature closure, penalty on interest) |
| Taxation (TDS) | TDS deducted if interest > ₹40,000 (₹50,000 for senior citizens) | TDS rules apply to total interest exceeding ₹40k / ₹50k |
| Tax Exemption Option | Yes, via specific 5-Year Tax Saver FDs (locked-in) | No tax-saver exemptions are available for RDs |
Although banks set identical annual interest rates for FDs and RDs, the total returns generated differ significantly. In a Fixed Deposit, you place the entire principal into the bank on day one. As a result, the entire amount generates compounded returns for the full tenure.
In contrast, a Recurring Deposit builds up gradually. For a 12-month RD, the first installment earns interest for 12 months, the second for 11 months, and the final installment earns interest for just 1 month. Because the capital remains in the bank for a shorter average duration, the absolute returns on an RD are always lower than on a lump-sum FD of the same amount.
Both FDs and RDs allow you to break your deposit before maturity in case of financial emergencies. However, banks charge a premature withdrawal penalty of 0.5% to 1.0%. This penalty is subtracted from the interest rate applicable for the period the deposit was actually active, not the original rate.
For quick liquidity, both schemes support an Overdraft (OD) Facility. You can obtain a loan or credit line up to 90% of your accumulated value at an interest rate that is typically 1% to 2% higher than your deposit rate. This allows you to meet temporary cash shortages without losing your accumulated interest or breaking the deposit.
The interest earned on both Fixed Deposits and Recurring Deposits is fully taxable. It is categorized under "Income from Other Sources" and taxed at your marginal slab rate (which could be up to 30%+ depending on your income).
Banks deduct TDS (Tax Deducted at Source) at 10% if your total interest income across all deposits at the bank exceeds ₹40,000 in a year (₹50,000 for senior citizens). If your total income is below the taxable threshold, you can submit Form 15G (for individuals) or Form 15H (for senior citizens) to prevent banks from deducting TDS.
Unlike equity-linked savings (like SIPs or mutual funds), FDs and RDs carry virtually zero market risk. The returns are locked in at the time of deposit and are unaffected by stock market fluctuations, offering guaranteed capital preservation.
Moreover, all commercial, cooperative, and foreign banks operating in India are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the RBI. If a bank defaults, each depositor is insured up to a maximum of ₹5,000,000 (₹5 Lakh) for both principal and interest across all accounts held in that bank.
The choice between an FD and an RD depends on your current financial status, liquidity pool, and savings habits.
Vijay receives a corporate performance bonus of ₹3,00,000. He is considering
whether to put it into a 5-year Fixed Deposit at 7.0% or set up a 5-year Recurring Deposit of
₹5,000 per month.
Analysis: Since he already has the cash, depositing
₹3,00,000 in a lump-sum FD yields a maturity value of ₹4,24,440 (Profit:
₹1,24,440). If he keeps the ₹3,00,000 in a regular savings account (earning 3%) and transfers
₹5,000/month to an RD, the RD maturity value is ₹3,57,955 (Profit: ₹57,955).
The remaining funds in the savings account generate minor interest, but overall, investing the
windfall immediately in an FD secures ₹66,485 more returns.
Simran wants to buy a professional camera costing ₹1,20,000 in 2 years. She does not have
₹1,20,000 today but can spare ₹5,000 every month from her salary.
Analysis: An RD of ₹5,000 per month
for 2 years at 6.8% is the perfect fit. She will deposit a total of ₹1,20,000 over 24 months,
and her RD will mature to ₹1,28,843, helping her buy the camera comfortably
without borrowing. Waiting to compile ₹1,20,000 before opening an FD would delay her purchase by
2 years, making the RD the ideal disciplined vehicle.
Get answers to the most common questions about Fixed Deposits and Recurring Deposits.
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