Fixed Deposit (FD) vs Recurring Deposit (RD)

5paisa Research Team

Last Updated: 23 Apr, 2024 10:58 AM IST

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Content

What is a Fixed Deposit?
What is a Recurring Deposit?
FD vs RD – A Comparison
FD vs RD – Which is Better?
Comparison of FD rates

Fixed Deposits (FD) and Recurring Deposits (RD) are two popular savings instruments. FD involves depositing a lump sum for a fixed term, earning higher interest rates compared to regular savings accounts. Ideal for one-time, substantial investments, it provides stability and predictable returns. RD suits regular, disciplined saving, allowing monthly deposits with interest rates similar to FDs. It's perfect for those with consistent income who can commit to periodic contributions, building savings gradually. Both FD and RD offer secure investment options, but differ in their flexibility and deposit arrangements.

What is a Fixed Deposit?

A Fixed Deposit (FD) is a financial instrument provided by banks that offers a higher interest rate than regular savings accounts. Investors deposit a lump sum amount for a fixed period, which could range from a few months to several years. The interest rate remains constant throughout the term, regardless of market fluctuations, ensuring predictable returns. Upon maturity, the investor receives the principal amount along with the accrued interest. FDs are a popular choice for risk-averse individuals looking for a safe investment option with guaranteed returns.

What is a Recurring Deposit?

A Recurring Deposit (RD) is a savings tool offered by banks that allows individuals to deposit a fixed amount of money every month into their RD account, earning interest similar to fixed deposits. The term of an RD can vary from six months to ten years, depending on the bank's offerings. At the end of the term, the depositor receives the total amount saved plus the interest earned. RDs are ideal for those who wish to build savings gradually through regular contributions, providing a disciplined approach to saving with predictable returns.

FD vs RD – A Comparison

Feature	Fixed Deposit (FD)	Recurring Deposit (RD)
Investment Type	Lump sum deposit	Monthly installment deposits
Interest Rates	Generally higher than savings accounts; fixed for the term	Similar to FDs; fixed for the term
Deposit Term	Ranges from a few months to several years	Typically from 6 months to 10 years
Capital Investment	Requires a substantial initial amount	Smaller, periodic investments over time
Flexibility	Less flexible; early withdrawal usually penalizes with lower interest	More flexible in terms of investment amount and sometimes allows penalty-free withdrawals
Suitability	Best for those with a lump sum to invest for a fixed period	Ideal for individuals who prefer to save gradually with consistent monthly deposits
Risk	Low risk; fixed returns	Low risk; fixed returns
Returns	Higher potential returns due to compound interest on a larger principal	Accumulates returns gradually; effective for building savings through regular contributions
Premature Withdrawal	Generally allowed with a penalty reducing interest rates	Some banks offer withdrawal with a penalty, affecting interest rates
Tax Implications	Tax deductible up to a certain limit under 80C; TDS applicable	No tax benefit; TDS applicable

FD vs RD – Which is Better?

Here’s a comparison in table form to determine which investment—Fixed Deposit (FD) or Recurring Deposit (RD)—might be better suited for different financial needs and situations:

Criteria	Fixed Deposit (FD)	Recurring Deposit (RD)
Initial Investment	Requires a lump sum, suitable for those with a significant amount to invest at once.	Requires small, periodic amounts, beneficial for those with regular income but limited lump sum capital.
Interest Rates	Usually offers slightly higher rates compared to RDs, maximizing returns on larger amounts.	Interest rates are similar to FDs, but the compounding effect is less due to periodic deposits.
Investment Flexibility	Less flexible; early withdrawals often incur penalties reducing earnings.	More flexible with periodic contributions; some plans allow changes in deposit amount and frequency.
Risk and Returns	Low risk with fixed and predictable returns, ideal for conservative investors.	Low risk; returns are predictable but accumulated gradually, suitable for disciplined savers.
Financial Goal	Best for achieving a lump sum financial goal, like funding a major purchase or investment.	Ideal for long-term saving goals, such as building a fund for future expenses or investments.
Ease of Saving	Requires ready availability of funds. Less manageable for those without immediate capital.	Easier for individuals to manage as it spreads the financial burden over time.
Tax Benefits	Tax benefits under Section 80C (in some cases); interest is taxable.	No specific tax benefits; interest is taxable, similar to FDs.

The choice between FD and RD depends on your financial situation, goals, and investment capacity. FDs are better for immediate, higher interest earnings on a lump sum, while RDs are more suitable for building savings gradually without initial financial strain.

Comparison of FD rates

Below is a comparison of Fixed Deposit (FD) rates offered by various banks as of the most recent data available. This table gives an overview of the interest rates for different tenure options:

Bank Name	1-Year Rate	2-Year Rate	5-Year Rate
State Bank of India	5.5%	5.6%	5.8%
HDFC Bank	5.6%	5.8%	6.1%
ICICI Bank	5.4%	5.5%	5.75%
Axis Bank	5.6%	5.75%	6.0%
Kotak Mahindra Bank	5.2%	5.4%	5.6%
Canara Bank	5.4%	5.5%	5.7%
Punjab National Bank	5.3%	5.4%	5.6%
Bank of Baroda	5.5%	5.7%	5.9%

This table illustrates how FD rates can vary by bank and by deposit term. Generally, longer terms offer higher interest rates. Rates are indicative and can vary depending on the amount deposited and the specific terms offered by each bank.

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Frequently Asked Questions

Does an FD or RD have a higher interest rate?

Generally, Fixed Deposits (FDs) offer slightly higher interest rates compared to Recurring Deposits (RDs) due to the upfront investment of a larger lump sum, which banks can use immediately, providing them with more capital to work with.

Are the rates for RD and FD the same?

No, the interest rates for Recurring Deposits (RDs) are usually similar to those of Fixed Deposits (FDs), but FDs often offer slightly higher rates due to the lump sum investment, which banks find more financially advantageous.

Is it better to invest in FD RD or PPF?

The choice between investing in FDs, RDs, or PPFs depends on your financial goals. FDs offer short-term, higher interest earnings, RDs allow gradual savings buildup, while PPFs provide long-term investment with tax benefits and higher returns over an extended period.

Who can invest in an RD?

Anyone with a regular income looking to build savings gradually through disciplined, periodic contributions can invest in a Recurring Deposit (RD). It's ideal for individuals who prefer a structured savings approach.

Can I withdraw my RD amount anytime?

Withdrawal policies for Recurring Deposits (RD) vary by bank. Generally, early withdrawals are allowed but may incur penalties, reducing the interest earned. Some banks may offer more flexible terms, so it's important to check specific bank policies.

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