When it comes to safe investment options, Fixed Deposit (FD) and Recurring Deposit (RD) are among the most popular choices. Both offer guaranteed returns, making them excellent options for conservative investors. However, there are key differences that can impact which one suits your financial goals better.
Fixed Deposit (FD) vs. Recurring Deposit (RD)
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
|---|---|---|
| Investment Type | One-time lump sum deposit | Monthly deposits |
| Interest Rate | 5.5% – 7.5% (varies by bank) | 5% – 7% (varies by bank) |
| Tenure | 7 days to 10 years | 6 months to 10 years |
| Liquidity | Can be withdrawn prematurely (with penalties) | Premature withdrawal allowed (with penalties) |
| Tax Benefits | Tax-saving FD (5 years) under Section 80C | No tax benefits |
| Best For | Large lump sum investments | Regular savings habit |
Both Fixed Deposits (FDs) and Recurring Deposits (RDs) are great investment options for those seeking safe and assured returns. If you have a lump sum amount and want to earn higher interest, an FD is the better choice. However, if you prefer a systematic savings approach, RD is the way to go. Consider your financial goals, liquidity needs, and tax implications before making a decision.
What is a Fixed Deposit (FD)?
A Fixed Deposit (FD) is a secure investment where you deposit a lump sum amount for a fixed tenure at a predetermined interest rate. The bank or financial institution pays interest on your deposit, either periodically or at maturity.
Benefits of FD:
- Higher Interest Rates: FDs typically offer higher returns compared to regular savings accounts.
- Guaranteed Returns: The interest rate remains fixed throughout the tenure, ensuring stable earnings.
- Flexible Tenure: You can choose from a wide range of durations (from 7 days to 10 years).
- Tax Benefits: Certain FDs with a lock-in period of 5 years offer deductions under Section 80C of the Income Tax Act.
- Loan Facility: You can take a loan against your FD in case of emergencies.
Example:
If you invest ₹1,00,000 in an FD at an annual interest rate of 6.5% for 5 years, your maturity amount would be approximately ₹1,38,500 (compounded quarterly).
see also: Get Bumper Interest Returns on FD of 88 Days
What is a Recurring Deposit (RD)?
A Recurring Deposit (RD) is an investment where you deposit a fixed amount every month for a predetermined period. It is ideal for individuals who want to build savings gradually.
Benefits of RD:
- Encourages Savings Habit: Suitable for those who prefer systematic savings.
- Low Initial Investment: You can start an RD with as little as ₹500 per month.
- Fixed Interest Rate: Provides predictable returns as the interest rate remains constant.
- Flexible Tenure: Ranges from 6 months to 10 years, allowing you to choose as per your financial goals.
Example:
If you invest ₹5,000 per month in an RD at an annual interest rate of 6% for 5 years, your maturity amount would be approximately ₹3,48,000.
FD vs. RD: Which One Should You Choose?
Choose FD If:
You have a lump sum amount to invest. You want higher interest rates and stable returns. You prefer tax-saving options (5-year FD under 80C). You are looking for a long-term investment with fewer transactions.
Choose RD If:
You want to develop a habit of monthly savings. You do not have a large lump sum but can save small amounts consistently. You need a short- to medium-term investment. You prefer an affordable and systematic approach to savings.
Taxation on FD and RD
- FD Interest Taxation: The interest earned on FDs is taxable under ‘Income from Other Sources’. Banks deduct TDS (Tax Deducted at Source) at 10% if the interest exceeds ₹40,000 per year (₹50,000 for senior citizens).
- RD Interest Taxation: RD interest is fully taxable and does not qualify for Section 80C benefits. Banks deduct TDS only if the interest exceeds ₹40,000 per year.
How to Save Tax on FD and RD?
- Choose a 5-year tax-saving FD to get Section 80C benefits.
- Split your FD investments across multiple banks to reduce TDS deduction.
- Submit Form 15G/15H if your total income is below the taxable limit.
How to Open an FD or RD Account?
Opening an FD or RD is simple and can be done online or offline:
Steps to Open an FD:
- Visit your bank’s website or nearest branch.
- Choose the FD tenure and amount.
- Provide KYC documents (Aadhaar, PAN, etc.).
- Transfer the lump sum deposit.
- Get your FD receipt and track it through net banking.
Steps to Open an RD:
- Log in to your bank’s net banking portal.
- Select the RD option and enter the deposit amount.
- Choose the tenure (6 months to 10 years).
- Set up auto-debit from your savings account.
- Start earning interest on monthly deposits.
see also: Tax Savings Strategies for 2025-26: Senior Citizens & New TDS Rules
Fixed Deposit (FD) vs. Recurring Deposit (RD) FAQs
1. Which has higher returns, FD or RD?
FDs usually offer slightly higher returns since the entire amount is deposited upfront, allowing the bank to generate more interest.
2. Can I withdraw my FD or RD early?
Yes, but banks charge a penalty (0.5% to 1%) for premature withdrawals.
3. Are FD and RD safe investments?
Yes, they are among the safest investment options, as banks are regulated by the Reserve Bank of India (RBI).
4. Can I take a loan against my FD or RD?
Yes, most banks allow you to take a loan against FD (up to 90% of the deposit amount). Some banks offer loans against RD, but the terms are stricter.
5. Do post offices offer FD and RD?
Yes, India Post offers both FD and RD with competitive interest rates under the Post Office Savings Schemes.
