What is the difference between recurring deposit and fixed deposit?

The main difference is that in a recurring deposit (RD), you make regular monthly deposits of a fixed amount, while in a fixed deposit (FD), you deposit a lump sum amount once. RDs help build saving habits through regular contributions, while FDs are suitable for investing surplus funds.

Which offers better returns - RD or FD?

Fixed deposits typically offer slightly higher interest rates compared to recurring deposits. However, the actual returns depend on the bank, tenure, and prevailing interest rates. FDs generally provide better returns due to the lump sum investment earning interest from day one.

What is the minimum tenure for RD and FD?

The minimum tenure for both recurring deposits and fixed deposits is typically 7 days to 1 month, depending on the bank. However, most banks offer tenures ranging from 1 month to 10 years for both RD and FD.

Can I withdraw money before maturity from RD and FD?

Yes, both RD and FD allow premature withdrawal, but it usually comes with a penalty. The penalty is typically 0.5% to 1% of the interest rate. Some banks may not allow premature withdrawal for very short-term deposits.

What happens if I miss an RD installment?

If you miss an RD installment, most banks charge a penalty fee ranging from ₹5 to ₹50 per missed installment. Some banks may close the RD account if consecutive installments are missed. It's important to maintain regular deposits to avoid penalties.

Are RD and FD returns taxable?

Yes, interest earned on both RD and FD is taxable as per your income tax slab. Banks deduct TDS (Tax Deducted at Source) if the interest earned exceeds ₹40,000 in a financial year (₹50,000 for senior citizens).

Which is better for systematic savings - RD or SIP?

RD offers guaranteed returns with capital protection, making it suitable for conservative investors. SIP in mutual funds offers potentially higher returns but comes with market risks. RD is better for short-term goals and risk-averse investors, while SIP is suitable for long-term wealth creation.

Can I get a loan against RD and FD?

Yes, most banks offer loans against both RD and FD. You can typically get a loan up to 80-90% of the deposit value. The interest rate on such loans is usually 1-2% higher than the deposit rate, making it a cost-effective borrowing option.

What is the minimum amount required for RD and FD?

The minimum amount for RD is typically ₹100-500 per month, depending on the bank. For FD, the minimum amount is usually ₹1,000 to ₹10,000. Many banks have reduced minimum amounts to make these instruments accessible to small savers.

Do senior citizens get higher interest rates on RD and FD?

Yes, senior citizens (aged 60 years and above) typically receive an additional interest rate of 0.25% to 0.75% on both RD and FD. This additional rate varies by bank and helps senior citizens earn better returns on their savings.

Recurring Deposit vs Fixed Deposit

Deciding on the best way to grow your savings often leads to the important choice of recurring deposit vs fixed deposit. Fixed deposits are excellent for investing a lump sum for assured returns, whereas recurring deposits enable consistent wealth building

5,449 Views | Updated on: Jun 16, 2025

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What is Fixed Deposits (FD)?

(FD), also referred to as a term deposit, is a straightforward financial agreement with your bank: you give them a lump sum of money for a pre-defined period, and in return, they guarantee a fixed interest rate on your investment. It is a popular choice for individuals seeking security and predictable growth for their surplus funds, acting as a reliable tool in their investment plans.

In order to know the difference between recurring deposit vs fixed deposit, let us first look at the key features of a fixed deposit:

Lump-Sum Investment: It requires a one-time investment to open the account.
Fixed Tenure/Maturity Period: You choose how long your money stays locked in, usually ranging from 7 days to 10 years, influencing your returns.
Guaranteed Interest Rates: The interest rate is fixed at the time of booking and remains unchanged throughout the tenure, offering predictable and assured returns.
Interest Payout Options: It offers flexibility to receive interest payouts monthly, quarterly, half-yearly, or annually.
High Safety & Security: FDs are considered one of the safest investment options.
Premature Withdrawal: Premature withdrawal is possible, but usually involves a penalty, usually a reduction in the applicable interest rate.
Loan Facility: Many banks offer loans against your FD balance, providing liquidity without needing to break the deposit.
Taxation: Interest earned is taxable as per your income tax slab, and banks may deduct Tax Deducted at Source (TDS) if the interest exceeds a specified threshold.

What is Recurring Deposit (RD)?

Recurring Deposits (RD) is an investment-building tool that offers smaller but regular payment options. It is a special kind of term deposit offered by banks that allows individuals with regular incomes to deposit a fixed amount every month for a pre-defined period, earning interest that is usually compounded. You can think of it as an automated savings plan, making you get habitual with financial discipline while growing your money.

To help you make the choice between a recurring deposit vs fixed deposit, let us now understand the key features of a recurring deposit:

Regular Deposits: You commit to investing a pre-decided amount at regular intervals, usually monthly, throughout the tenure.
Flexible Installment Amount: The installment amount is fixed upon opening the account but can be chosen by you, often starting from a very nominal sum.
Fixed Tenure: RDs come with a predetermined duration, generally ranging from 6 months to 10 years, similar to FDs.
Attractive Interest Rates: Interest rates are usually comparable to those offered on fixed deposits for the same tenure and are compounded, often quarterly, leading to good returns.
Disciplined Savings Habit: RDs are excellent tools for cultivating a regular savings habit, as they require consistent investment.
Premature Withdrawal: While allowed, premature closure usually attracts a penalty, impacting the interest earned.
Loan Facility: Many banks offer the option to take a loan against the balance in your RD account.
Auto-Renewal Option: On maturity, some banks offer an auto-renewal facility for your RD, ensuring your savings continue to grow.
Taxation: Interest earned on RDs is taxable according to your income tax slab, and TDS (Tax Deducted at Source) may apply if interest income exceeds the set threshold.

Difference Between Fixed Deposit and Recurring Deposit

While both Fixed Deposits (FDs) and Recurring Deposits (RDs) are secure term deposit products offered by banks, they cater to different saving patterns and financial objectives. Understanding the RD and FD difference is important for making an informed investment decision. The primary difference lies in how you invest: FDs involve a one-time lump sum, while RDs are built through regular, periodic installments.

Here is a clear comparison for recurring deposit vs fixed deposit:

Feature	Fixed Deposit (FD)	Recurring Deposit (RD)
Nature of Investment	One-time lump sum investment.	Regular, fixed installments over a chosen period.
Investment Flow	Single deposit at the beginning.	Multiple deposits throughout the tenure.
Suitability	Ideal for those with a substantial amount to invest at once.	Perfect for individuals aiming to build savings systematically from regular income.
Minimum Amount	Typically has a higher minimum deposit requirement.	Lower minimum installment amount, making it accessible.
Flexibility in Deposits	No further deposits allowed into the same FD account once opened.	Designed for consistent and periodic deposits.
Building Corpus	Utilizes existing surplus funds for growth.	Focuses on gradually accumulating a corpus through discipline.
Interest Payout	Options for periodic (monthly, quarterly) or cumulative payout at maturity.	Interest is typically compounded and paid at maturity along with the principal.

Both instruments offer safety and predictable returns, making your choice dependent on whether you have a lump sum to invest now or prefer to save small amounts regularly.

Common Features of FD and RD

Despite their differing investment approaches, fixed deposits and recurring deposits share several fundamental characteristics that make them popular choices for risk-averse investors. Let us explore the common features of FD and RD:

Guaranteed Returns

Both FDs and RDs provide assured returns at a pre-determined interest rate for the deposit tenure.

Fixed Tenure

Both offer a range of tenures, from short-term (a few months) to long-term (several years).

Low Risk

Both are classified as low-risk investment options due to the fixed interest rates and guaranteed principal amount.

Premature Withdrawal Facility

Both FDs and RDs usually offer a premature withdrawal facility, although often subject to a penalty or reduced interest rate.

Accessibility

Available through almost all banks and financial institutions, making them easily accessible to a wide range of customers.

Nomination Facility

Both FDs and RDs allow you to nominate a beneficiary who will receive the proceeds in the event of your passing.

Loan Against Deposit

You can often take out a loan against both your FD and RD accounts, offering a line of credit without breaking your investments.

Tax Implications

The interest earned from both FD and RD investments is taxable as per your income tax slab, and Tax Deducted at Source (TDS) rules may apply.

FD Vs RD - Which is Better?

The question of if you should choose a fixed deposit or a recurring deposit does not have a universal answer. The optimal choice entirely depends on your individual financial situation, investment capacity, and savings goals. The key to choosing the better option is to understand the difference between FD and RD.

If you have a substantial lump sum of money available, a fixed deposit is often the more suitable option. It allows you to lock in this entire amount at a prominent interest rate for a chosen tenure, maximizing the interest earned on that specific sum. FDs are ideal for individuals who prefer to make a one-time investment and let it grow without needing to make further contributions.

Conversely, a recurring deposit is designed for individuals who wish to build a savings corpus over time through smaller and regular contributions. If you have a steady monthly income and want to instill a discipline of saving, an RD is an excellent choice. This approach is often more practical for salaried individuals or those who prefer not to commit a large sum at once.

Conclusion

In the financial chessboard of savings, both fixed deposits and recurring deposits are efficient investment moves, tailored for different purposes. If you are placing a lump sum on an FD or building your treasure with an RD, the key is aligning your choice with your financial rhythm and goals. Both paths offer the assurance of secure growth and the satisfaction of disciplined financial planning. Remember, the best strategy is always the one that works for you. Choose wisely, save consistently, and watch your wealth flourish securely.

FAQs on Recurring Deposit vs Fixed Deposit

Which is better: RD or FD for short-term savings?

Both are suitable for short-term goals. An FD is good if you have a lump sum to invest, while an RD helps build a short-term fund through regular yet smaller savings. Choose based on your deposit capacity.

Can I open both RD and FD accounts simultaneously?

Absolutely! You can open and maintain both RD and FD accounts at the same time with the same or different banks. This allows you to diversify your savings strategy.

Which deposit offers higher interest rates: RD or FD?

Interest rates for RDs and FDs for the same tenure and bank are generally quite similar. Minor differences, if any, depend on the bank’s specific policies and interest rates at the time of booking.

Is the interest earned on RD and FD taxable?

Yes, the interest earned from both recurring deposits and fixed deposits is fully taxable as per your applicable income tax slab. Banks may also deduct TDS if interest income exceeds a certain threshold.

Which is more flexible in terms of deposit amount: RD or FD?

Recurring Deposits (RDs) offer more flexibility in terms of deposit amount, as they allow you to invest smaller and fixed sums regularly. Fixed Deposits (FDs) require a one-time, usually lump-sum investment.