FD vs RD: How Fixed Deposit and Recurring Deposit Actually Differ and Where Each Works Better?

If you have some money saved up and want to grow it safely, chances are you have come across two options: Fixed Deposit (FD) and Recurring Deposit (RD). Both are bank-backed savings products that offer guaranteed returns and protect your capital. Yet they work very differently and suit different kinds of savers.

This blog breaks down what FD and RD mean, how they differ, how interest is calculated on each, and which one makes more sense for your situation.

What is a Fixed Deposit (FD)?

A Fixed Deposit is a savings product where you deposit a lump sum with a bank for a fixed period at a predetermined interest rate. The bank pays interest on this deposit, and at maturity, you receive the principal plus accumulated interest.

FDs are among the most popular investment options in India because they are safe, easy to open, and offer predictable returns regardless of market conditions.

Key features:

• One-time lump sum deposit
• Tenure ranges from 7 days to 10 years
• The interest rate is locked at opening and does not change
• Interest can be received monthly, quarterly, or at maturity
• Loans can be availed against the FD without prematurely closing it
• 5-year Tax-Saving FD qualifies under Section 80C (old tax regime only)
• Premature withdrawal permitted with a penalty

What is a Recurring Deposit (RD)?

RD is a savings scheme in which you deposit a fixed amount each month for a chosen period and earn interest on the accumulated amount. At the end of the tenure, you receive the total amount deposited, including the interest earned.

RDs are ideal for people who do not have a large lump sum to invest but want to build savings steadily from their monthly income.

Key features:

• Fixed monthly deposit amount
• Tenure ranges from 6 months to 10 years
• Interest rates are comparable to FD rates at the same bank
• Each monthly instalment earns interest from the date it is deposited
• Premature withdrawal permitted, usually with reduced interest and a penalty
• Missing an instalment typically attracts a small penalty

FD vs RD: Key Differences

The primary difference between a Fixed Deposit (FD) and a Recurring Deposit (RD) is the investment pattern and the way interest is calculated.

Here is a detailed side-by-side comparison of Fixed Deposit and Recurring Deposit:

How is Interest Calculated on FD and RD?

Long-term FDs and RDs generally use compound interest, calculated quarterly:

Formula:

Where:

• P = Principal amount
• r = Annual interest rate
• n = Number of times interest is compounded per year
• t = Tenure in years

FD Interest Calculation

For a Fixed Deposit, interest is calculated on the entire principal amount for the full tenure.

Example:

• Principal = Rs 1,00,000
• Interest rate = 7% per annum
• Tenure = 2 years
• Compounding = Quarterly

Maturity amount = approximately Rs 1,14,888. Interest earned = Rs 14,888

RD Interest Calculation

For a Recurring Deposit, interest is calculated on each monthly instalment separately, from the date of deposit to maturity. The total interest is the sum of interest earned on all instalments.

Example:

• Monthly deposit = Rs 5,000
• Interest rate = 7% per annum
• Tenure = 2 years (24 months)
• Total amount deposited = Rs 1,20,000

Maturity amount = approximately Rs 1,28,953. Interest earned = Rs 8,953

Notice that even though Rs 1,20,000 was invested in the RD (same as the FD principal), the interest earned is lower. This is because in an RD, not all the money is deposited from day one; each instalment starts earning interest only from the month it is deposited.

Use the Shoonya RD calculator or the FD calculator to get the exact maturity amount based on the current interest rates offered by your bank.

What is the Applicable Tax on FD and RD Interest

Interest earned on both FD and RD is fully taxable. It is added to your total income and taxed as per your applicable income tax slab.

• TDS is deducted at 10% if interest from a bank exceeds Rs 50,000 in a financial year (Rs 1,00,000 for senior citizens), as updated from 1 April 2025
• If your total income is below the basic exemption limit, you can submit Form 15G (below 60 years) or Form 15H (senior citizens) to avoid TDS deduction
• There is no separate tax benefit on RD interest
• Tax-Saving FD offers a deduction of up to Rs 1.5 lakh under Section 80C under the old tax regime only

FD vs RD: Which is Better?

There is no universally better option. The right choice depends on how you earn, save, and plan to use your money.

Choose an FD if:

• You have a lump sum ready to invest
• You want to maximise returns on what you already have
• You need a tax-saving investment under Section 80C (old regime)
• You want to choose how and when you receive the interest
• You are a retiree or conservative investor seeking stable income

Choose an RD if:

• You do not have a large amount available right now
• You want to save a fixed portion of your salary every month
• You are working towards a specific goal, 6 months to 2 years away, such as a vacation, a gadget, or an emergency fund
• You are a student, young earner, or first-time saver, building the savings habit

Is RD Better Than SIP?

RD is better when you want guaranteed returns and capital safety, especially for a short-term goal.

SIP is better when you are investing for a long-term goal (5+ years) and can handle some market volatility in exchange for potentially higher returns.

Conclusion

FD vs. RD: FAQs

Source: MoneyControl