Fixed Deposit vs Recurring Deposit – Which is Better for You?

When it comes to safe and reliable savings options in India, Fixed Deposits (FDs) and Recurring Deposits (RDs) are two of the most popular choices. Both are offered by banks as well as post offices, and they provide guaranteed returns with minimal risk. But which one is better for you – an FD or an RD? Let’s break it down in simple terms.

10/4/20252 min read

white concrete building
white concrete building

What is a Fixed Deposit (FD)?

  • In an FD, you invest a lump sum amount (for example ₹50,000 or ₹1,00,000) for a fixed period, say 1 year, 3 years, or 5 years.

  • The bank or post office pays you a fixed rate of interest.

  • At the end of the tenure, you get back your principal + interest earned.

Example: If you invest ₹1,00,000 in a 5-year FD at 7% interest, you will receive both your money and accumulated interest after 5 years.

What is a Recurring Deposit (RD)?

  • In an RD, you deposit a small fixed amount every month (like ₹1,000, ₹2,000, etc.) for a fixed tenure.

  • Interest is calculated on each deposit, similar to FDs, and you get the total amount with interest at maturity.

  • It’s like a “monthly savings habit” with guaranteed returns.

Example: If you deposit ₹2,000 every month for 5 years in an RD at 6.5% interest, you will receive around ₹1.4 lakh at maturity.

FD vs RD – Key Differences

  • Feature Fixed Deposit (FD)Recurring Deposit (RD)Investment Type One-time lump sum Monthly installments Ideal For People with surplus money to invest at once People who want to save monthly in a disciplined way Returns Higher because money is invested upfront Slightly lower, since money is invested gradually Flexibility Choose tenure (7 days to 10 years in banks; up to 5 years in post office)Tenure usually 6 months to 10 years Premature Withdrawal Allowed but with penalty Allowed but with penalty Loan Facility Available against FD Available against RD Risk Very low (bank/post office backed)Very low (bank/post office backed)

Interest Rates – Banks vs Post Office

  • Banks: FD and RD rates vary from 5% to 8%, depending on tenure and bank.

  • Post Office:

    • Post Office Time Deposit (like FD) – rates usually around 6.9% to 7.5% (quarterly revision).

    • Post Office RD – currently 6.7% (5-year RD).

  • Senior Citizens often get extra 0.5% interest on bank FDs. Post office also has special schemes like Senior Citizen Savings Scheme (SCSS) with higher returns.

Which is Better for You?

  • Choose FD if…

    • You have a lump sum amount (bonus, savings, inheritance).

    • You want higher returns since the full amount earns interest from day one.

    • You prefer long-term locking for wealth growth.

  • Choose RD if…

    • You don’t have a large amount right now but can save regularly.

    • You want to build a saving habit.

    • You are a salaried person or student who prefers small monthly deposits.

Tax Implications

  • Interest earned on both FD and RD is taxable under “Income from Other Sources”.

  • Banks deduct TDS if interest > ₹40,000 per year (₹50,000 for senior citizens).

  • Post Office deposits also follow the same rules if interest crosses limits.

If you want tax savings, you can choose a 5-Year Tax-Saving FD (eligible for deduction under Section 80C up to ₹1.5 lakh). Post Office 5-Year Time Deposit also qualifies for 80C.

Final Thoughts

Both Fixed Deposits and Recurring Deposits are safe, risk-free, and guaranteed-return investment options.

  • If you have lump sum money, an FD is usually better as it gives higher returns.

  • If you want to save step by step, an RD helps you build a corpus slowly without financial pressure.

For short-term goals, post office deposits can be useful due to government backing. For better flexibility and digital access, bank FDs/RDs are more convenient.