FD vs RD: What’s the Difference and Which is Better?

If you have a lump sum amount, a Fixed Deposit (FD) usually gives slightly higher returns because the entire amount earns interest from day one. If you want to save gradually, a Recurring Deposit (RD) is ideal. Both are low-risk savings options regulated by the Reserve Bank of India (RBI).

Wondering which is better, FD or RD? You’re not alone. Many of us often get confused between recurring deposit vs fixed deposit while planning their finances. Both are safe, low-risk options to grow your money but they work differently. Here you will understand the RD and FD difference, how each works and which one suits your savings goals better.

Whether you want to invest a lump sum or build a habit of monthly saving, this guide will help you understand the pros, cons and returns of both options so you can confidently choose between a recurring deposit or fixed deposit.

What is a Fixed Deposit (FD) & How Does it Work?

An FD is a one-time investment. You deposit a lump sum amount for a fixed period, say 6 months, 1 year or even 5 years and earn interest on it. Most banks in India calculate FD interest on a quarterly compounding basis. The longer you keep it, the better the returns.

Let’s say you’ve invested ₹50,000 in an FD for 2 years, then you’ll earn interest on the full amount for the full term.

Types of FDs:

• Cumulative FD: Interest is paid with the principal at maturity.
• Non-cumulative FD: Interest is paid monthly, quarterly, half-yearly or yearly.
• Tax-saving FD: Eligible for deduction under Section 80C of the Income Tax Act (lock-in of 5 years).
• Senior Citizen FD: Gives higher rates for individuals aged 60 and above.

What is a Recurring Deposit (RD)?

An RD helps you build savings gradually. You deposit a fixed amount every month, say ₹2,000 for a chosen period. It’s perfect if you can’t invest a large sum at once but still want to save regularly.

Example: You deposit ₹2,000 every month for 2 years. With monthly contributions, your money also grows over time.

Post Office RD: The India Post RD scheme is a popular choice with fixed 5-year tenure, quarterly compounding, and government-backed safety.

Recurring Deposit vs Fixed Deposit: Key Differences

Feature	Fixed Deposit (FD)	Recurring Deposit (RD)
Deposit Type	One-time lump sum investment. You deposit a fixed amount once for a chosen tenure.	Regular monthly deposits. You commit to saving a fixed amount every month.
Best For	Ideal for those with surplus money looking to earn interest over time.	Perfect for salaried individuals who want to build a habit of monthly saving.
Flexibility	Low flexibility. Once booked, premature withdrawal may lead to penalty.	More flexible for budgeting. Small, regular payments are easier to manage.
Interest Calculation	Compounded quarterly on the full amount from day one, leading to higher returns.	Interest is calculated on each monthly deposit from the time it is deposited.
Returns	Typically offers slightly higher interest rates due to lump sum and longer tenure.	Returns are slightly lower than FDs because funds are invested gradually.
Payout Options	Cumulative or non-cumulative payouts — interest can be paid monthly, quarterly, or at maturity.	Interest and principal are usually paid together at maturity.
Tenure Range	Generally ranges from 7 days to 10 years, depending on the financial institution.	Usually, it ranges from 6 months to 10 years.
Risk Factor	Very low-risk, safe investment option with fixed returns.	Equally low-risk with guaranteed returns.
Discipline Required	Low — just one-time investment needed.	High — requires consistent monthly deposits to get full benefit.
Loan Against Deposit	Many banks allow loans against FDs.	Some banks offer loans against RDs, but it’s less common.
Premature Withdrawal	Allowed but with penalty on interest rate. Senior citizen FDs may have relaxed penalties in some banks.	Allowed in some banks/post offices, but with reduced interest.
Nomination Facility	Available for all depositors.	Available for all depositors.

Taxation and TDS on FD and RD

• Interest gained on both FD and RD is taxable as per your income tax slab.
• TDS: Banks deduct Tax Deducted at Source if the total interest in a financial year exceeds the threshold limit under Section 194A of the Income Tax Act.
• Form 15G/15H: Submit these to avoid TDS if your income is below the taxable limit.
• Section 80C benefit applies only to 5-year tax-saving FDs, not RDs.

FD vs RD: Difference, Returns, Tax & Which is Better?

If the question arises in front of you that whether you should go for a recurring deposit or fixed deposit, then here’s a simple way to look at it:

• Choose FD if you got a bonus, gift money, or any extra cash lying idle.
• Choose RD if you want to build a savings habit and can commit to a monthly amount.
• Choose a tax-saving FD if you want safe returns along with a deduction under Section 80C.
• Choose Senior Citizen FD if you’re 60+ to enjoy higher interest rates.
• Choose Post Office RD for guaranteed government-backed returns.

This comparison between recurring deposit vs fixed deposit can help you decide which suits your lifestyle better.

Worked Example: Same Total Outlay

Let’s say, you want to invest ₹48,000 over 2 years at 6.5% p.a. (quarterly compounding):

• FD: ₹48,000 lump sum → Maturity = ₹54,600
• RD: ₹2,000/month for 24 months → Maturity = ₹51,400

Here, in an FD, the whole amount earns interest from day one and in an RD, each monthly deposit earns interest only from its deposit date.

Final Thoughts

Both RDs and FDs are great tools to grow your money safely. Whether you’re a salaried person looking to save monthly or someone with surplus funds, understanding the RD and FD difference helps you plan better. So next time you’re stuck between a recurring deposit or fixed deposit, ask yourself: Do I want to save all at once or bit by bit?

With this clear picture and knowing about compounding, maturity amounts, TDS rules, and tax benefits under Section 80C — you’re better equipped to make a smart money move!

Download the Fibe App now and book your Fixed Deposit in just a few clicks starting from ₹1,000. Enjoy flexibility, security and assured growth on your savings!

FAQs on Difference Between FD and RD

Which is better FD or RD?

It depends on your financial situation. If you have a lump sum, go for an FD. If you prefer monthly savings, choose an RD. Both are safe and offer assured returns.

Are FD and RD interest rates the same?

Not exactly. FD rates are generally slightly higher than RD rates. However, both are offered by banks and NBFCs and can vary depending on the institution and tenure.

Is FD interest taxable?

Yes. Interest from FD is taxable as per your slab. TDS applies if the interest crosses the annual limit.

Can I take a loan against my FD or RD?

Yes, loans against FDs are common. Loans against RDs are less common but available in some banks and post offices.