Fixed Deposit vs Recurring Deposit: Complete Guide

Fixed Deposits (FD) and Recurring Deposits (RD) are the two pillars of conservative savings in India. Both are offered by banks and post offices, carry near-zero risk, and guarantee returns. But they serve fundamentally different financial purposes — an FD locks a lump sum, while an RD builds a corpus through monthly installments.

How FD interest is calculated

Banks calculate FD interest using quarterly compounding. The maturity formula is:

For example, a ₹1,00,000 FD at 7.1% for 5 years matures to approximately ₹1,41,478. The entire interest of ₹41,478 is earned without any monthly commitment — you deposit once and forget.

How RD interest is calculated

RD interest calculation is more complex because each monthly installment earns interest for a different duration. The effective formula uses quarterly compounding on each installment from the date of deposit to maturity. Generally, the total interest earned on an RD is lower than an FD of the same total amount, because later installments have less time to compound.

FD vs RD: Head-to-head comparison

• Investment Style: FD requires a lump sum upfront; RD allows small monthly deposits (as low as ₹100/month).
• Returns: FD earns more total interest because the entire principal compounds from day one. An RD of equivalent total deposits yields 15–20% less interest.
• Flexibility: RD is more flexible for salaried individuals who can set aside a fixed amount monthly. FD is ideal when you receive a bonus, inheritance, or windfall.
• Premature Withdrawal: Both allow premature withdrawal with a 0.5–1% penalty on the interest rate. Some banks offer loan-against-FD facilities.
• Tax Treatment: Interest from both FD and RD is taxable as "Income from Other Sources." TDS is deducted if annual interest exceeds ₹40,000 (₹50,000 for senior citizens).

When to choose FD over RD

Choose an FD when you have a lump sum available (bonus, matured investment, gift), want maximum guaranteed returns, or need to park emergency funds with quick access. The 5-year Tax Saver FD also qualifies for Section 80C deduction up to ₹1.5 lakh.

When to choose RD over FD

Choose an RD when you want to build savings discipline with a monthly commitment, don't have a large lump sum, or want to accumulate a corpus for a specific goal (vacation, gadget, down payment). RDs work like a forced savings mechanism — perfect for beginners.