Fixed Deposits (FDs) and Recurring Deposits (RDs) are two of the most trusted savings products in India. Both are offered by banks and post offices, both give a fixed, pre-agreed interest rate, and both are low-risk. The real difference is how the money goes in — and that one detail decides which one is right for you.
How a Fixed Deposit works
An FD takes a single lump sum and locks it for a chosen tenure, anywhere from 7 days to 10 years. The interest rate is fixed at the time of opening and does not change for the life of the deposit, even if bank rates fall later. Interest is typically compounded quarterly. You can choose a cumulative FD where interest is reinvested and paid at maturity, or a non-cumulative FD that pays out interest monthly or quarterly for regular income.
Example: ₹1,00,000 in an FD at 7% for 5 years grows to roughly ₹1,41,478 at maturity.
How a Recurring Deposit works
An RD is built for people who save from monthly income rather than a one-time sum. You commit to depositing a fixed amount every month for a set tenure, commonly 6 months to 10 years. Each instalment earns interest for the time it stays invested, and like FDs, RD interest is usually compounded quarterly. Because later instalments earn for shorter periods, the overall return looks slightly lower than a comparable FD even at the same rate.
Example: ₹5,000 per month in an RD at 7% for 5 years grows to roughly ₹3,59,664, on total deposits of ₹3,00,000.
Side-by-side comparison
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
|---|---|---|
| Deposit pattern | One-time lump sum | Fixed amount every month |
| Best suited to | Investors with a surplus ready | Savers building from monthly income |
| Interest rate | Fixed for full tenure | Fixed for full tenure |
| Compounding | Usually quarterly | Usually quarterly |
| Returns (same rate/tenure) | Slightly higher | Slightly lower |
| Liquidity | Premature withdrawal allowed, with penalty | Premature closure allowed, with penalty |
| Risk | Very low | Very low |
| Taxation of interest | Fully taxable as per slab | Fully taxable as per slab |
Liquidity and penalties
Both products allow you to break the deposit early if you genuinely need the money, but you usually pay a small penalty, typically a reduction of 0.5% to 1% on the applicable rate. An FD gives you a single larger pool you can access; an RD lets you stop or close, though doing so early reduces the benefit of the compounding you were building toward. Neither is meant for money you might need next week, but both are far more accessible than long lock-in products like PPF.
Taxation in general terms
This is where many savers get caught out. Interest from both FDs and RDs is fully taxable and added to your income, taxed at your slab rate. Banks deduct TDS once interest crosses the annual threshold, though you can submit Form 15G/15H if your total income is below the taxable limit. There is no special tax exemption on ordinary FD or RD interest (the only exception is a designated 5-year tax-saving FD, which qualifies under Section 80C but locks the money for the full term).
Who should choose which
Pick an FD if you already have a lump sum, want the slightly higher return, and want to lock a rate before rates fall. It is ideal for parking an emergency fund, maturity proceeds, or a bonus.
Pick an RD if you don’t have a large sum but can set aside a fixed amount each month. It instils discipline and is a great way to save toward a near-term goal like a trip, a gadget, or a down payment, without market risk.
Many savers use both: an RD to accumulate monthly savings, and an FD to park the lump sum once it builds up. Run your own figures with our FD calculator and RD calculator before committing.
Interest rates shown are illustrative; actual bank and post office rates change over time. Returns from FDs and RDs are fixed once booked, but tax treatment depends on your income. This article is for education only and is not financial advice.