When it comes to saving for your child’s future or your own goals, you’ll often hear about Fixed Deposits (FD) and Recurring Deposits (RD). Both are popular in India, but they work quite differently.
A Fixed Deposit lets you deposit a lump sum for a fixed tenure and earn a fixed interest rate.
A Recurring Deposit requires you to invest a smaller, fixed amount every month for a chosen period.
This guide will explain the key difference between FD and RD, their pros and cons, and help you decide which suits your needs. We’ll cover everything from basic definitions and current interest rates to taxation and real world tips, so you can make an informed decision.
What is a Fixed Deposit (FD)?
A Fixed Deposit is an investment where you deposit a one time lump sum for a fixed tenure.
Ideal for
Parents or individuals who have a lump sum amount and want safe, predictable growth.
Great for short to medium term goals like school fees, gadgets, travel, or emergency funds.
Returns
The bank offers a guaranteed interest rate for this period. Usually higher than a savings account. As of 2025, most banks offer around 6% to 8% per year for 1 to 5 year FDs.
Tenure
The typical FD tenure ranges from 7 days up to 10 years. You can often choose to receive interest payouts monthly, quarterly or annually, or let it compound and be paid at maturity.
Interest payout options
You can choose how you want your interest:
- Monthly
- Quarterly
- Yearly
- Or compounded and paid at maturity
Safety
FDs are very safe. They are protected by deposit insurance (DICGC) up to ₹5 lakh per bank. For example, many banks quote FD rates around 6%–8% p.a. (as of 2025) for tenures of 1 to 5 years.
What is a Recurring Deposit (RD)?
A Recurring Deposit is a type of investment that lets you invest small amounts regularly.
Instead of a lump sum, you deposit a fixed sum every month for a tenure commonly from 6 months up to 10 years. Each deposit earns interest, and the bank pays you the total principal plus all accumulated interest at the end of the term.
Ideal for
Salaried people, parents, and students who earn monthly and want to build savings slowly and steadily.
Returns
It’s slightly lower than Fixed Deposits since money is added gradually. But it’s much better than keeping money in a savings account.
Tenure
From 6 months to 10 years, depending on your goals or bank.
Interest payout
The interest is added to your deposits and paid at maturity along with your total savings.
Safety
RDs are very safe as they are insured up to ₹5 lakh like FDs and offer fixed rates. Deposits are protected by DICGC insurance up to ₹5 lakh per bank just like FDs.
In summary, RD is great for regular savers like salaried people or parents who prefer to add money every month rather than all at once.
Key Differences Between FD and RD
| Feature | Fixed Deposits (FD) | Recurring Deposits (RD) |
| Mode of investment | A one time lump sum deposit | Fixed amount deposited every month |
| Ideal for | People who already have money to invest | People who want to save from monthly income |
| Tenure | From 7 days to 10 years | From 6 months to 10 years |
| Minimum amount | Starts from around ₹1,000 (some banks allow ₹100) | Starts from ₹100 to ₹500 per month |
| How interest works | You can choose monthly, quarterly, yearly, or cumulative payout | Interest is added and paid only at maturity |
| Interest rates | Slightly higher than RD | Slightly lower than FD |
| Returns | Higher returns since the full amount earns interest from day one | Lower than FD since money is added gradually |
| Partial withdrawal | Allowed by many banks | Not allowed |
| Loan against deposit | Yes, up to 90% of deposit value | Not available |
| Tax benefits | Only 5-year tax-saving FD gets 80C benefit | No tax benefit |
| Tax on interest | Interest is taxable | Interest is taxable |
| Safety | Insured up to ₹5 lakh per bank | Insured up to ₹5 lakh per bank |
FD or RD – Which Should You Choose?
The right choice depends on how you earn and how you save it.
Choose a Fixed Deposit (FD) if
You already have a lump sum. You have extra money through bonuses, savings, or money.
Since the full amount is invested from day one, it earns more interest over time.
This is why FDs usually give better returns than RDs for the same total amount of money.
Some education-focused FDs on EduFund even go up to 9.5% p.a., making them ideal for building your child’s future fund.
Choose a Recurring Deposit (RD) if
You earn monthly but do not have a big lump sum. RD helps you build savings slowly by investing a fixed amount like ₹5,000 every month.
It works like a safe SIP with zero market risk. By the end of the tenure, you have a ready corpus for school fees, a laptop, or travel.
Even if you face an emergency, you can close the RD and get your money back, though with slightly lower interest.
Best strategy for most families
Many parents use both. A bonus or large saving goes into an FD. Monthly savings go into an RD. This gives you higher returns from FD and discipline from RD.
What Are the Current FD & RD Interest Rates (2025–26)
Most Indian banks are offering around 6% to 8% per year for 1 to 5 year deposits.
This applies to both Fixed Deposits and Recurring Deposits.
SBI FD and RD Interest Rates in 2025
- 1 year FD or RD
6.8% for regular customers
7.3% for senior citizens
- 5 year FD
Around 6.5% for regular customers
7.0% to 7.5% for senior citizens
What about smaller banks
Small finance banks and NBFCs usually pay more.
Many offer around 7.5% to 8.0% interest per annum and some even higher for special tenures. These are still covered by deposit insurance up to ₹5 lakh.
Can You Withdraw Money Early from FD and RD
Life is unpredictable. So, it is important to know how easily you can get your money back.
What Happens When You Withdraw Your Fixed Deposit (FD) Money Early
FDs are more flexible. You can break an FD before maturity. Banks usually reduce your interest by around 0.5% to 1%. Many banks also allow partial withdrawals, so you do not need to close the entire FD.
What Happens When You Withdraw Your Recurring Deposit (RD) Money Early
RDs are less flexible. You cannot withdraw a few months of savings. You must close the entire RD to take money out.
When you close early, the bank pays interest only till the last completed month, often at a lower rate.
How Are Fixed Deposit and Recurring Deposit Taxed in India?
Both FD and RD interest are treated as income. Whatever interest you earn is added under “Income from Other Sources” and taxed as per your income slab. There is no automatic tax exemption for either.
Do FD or RD give tax benefits?
Only one product gives tax relief. A 5 year tax saving Fixed Deposit qualifies under Section 80C. You can claim up to ₹1.5 lakh per year as a deduction.
Recurring Deposits do not offer any tax benefit. All RD contributions are made from post tax income.
What about TDS on FD and RD?
From FY 2025–26 onwards:
- No TDS if total interest is below
₹50,000 for regular citizens
₹1,00,000 for senior citizens
- If interest goes above this, the bank deducts 10% TDS
- If PAN is not given, 20% TDS is deducted
This rule applies to both FD and RD.
Even if TDS is not deducted, you must still declare interest in your tax return.
How Fixed Deposits and Recurring Deposits Build Your Wealth
Suppose you have ₹24,000 to invest for 1 year at 7.2% p.a. compounded monthly.
Option 1: Put ₹24,000 in an FD. After 1 year, you’d have about ₹25,786 (₹24,000 principal + ₹1,786 interest).
Option 2: Invest ₹2,000 per month in an RD for 12 months (total ₹24,000).
The RD matures to about ₹24,957 (₹24,000 principal + ₹957 interest).
While The FD gives ₹829 more in interest than the RD in this case.
Over longer periods, the gap widens after 5 years the same example shows a difference of over ₹27,000. This is because with an FD your entire ₹24,000 earns interest the whole year, whereas each ₹2,000 RD deposit earns interest for only the remaining months.
Another scenario: A parent saves ₹5,000 every month to build an education fund. Using an RD, they’ll accumulate ₹60,000 in a year plus interest a disciplined way to meet next year’s fees. But if the same parent gets a ₹60,000 bonus in January and locks it in an FD for one year, that single FD will earn more interest than the 12-part RD example above.
These examples show that FDs generally earn more for the same total saving, but RDs make saving easy and automatic even without a lump sum. In practice, families often use a mix: e.g. the child’s school fees require ₹1 lakh in 3 years.
One could take a ₹1 lakh bonus now and put it in an FD and separately save ₹2,500/month in an RD as backup.
This way you benefit from both approaches. You can even convert an RD to a new FD after it matures if needed.
Final Takeaway
In summary, FD and RD each have their place in an Indian saver’s toolbox.
FD and RD both play an important role in saving.
Choose an FD if you have money now and want higher guaranteed returns.
Choose an RD if you want to build savings slowly from your monthly income.
Both are safe and protected by deposit insurance.
To decide, look at:
- How you earn money
- When you need the money
- Whether you may need to withdraw early
- And the interest rates available
Frequently Asked Questions
Which is better – an FD or an RD?
It depends on your situation. An FD earns more interest for a given sum because the full amount works for you from day one. But an RD is better if you cannot invest in a lump sum and want to save it regularly. Use an FD if you have spare cash now; use an RD if you prefer monthly saving.
Can I calculate how much I’ll get from an RD?
Yes. RD interest is calculated on each monthly deposit. Banks often provide RD calculators online. As a rule of thumb, RD interest is the same rate as an FD for the same tenure. So you can estimate by treating each installment as a small FD maturing at the end.
What happens if I miss an RD installment?
If you miss a payment, usually that month’s deposit simply doesn’t earn interest. Some banks may allow one unpaid instalment without penalty, but others may cancel the RD if several months are missed. Always check the RD’s terms (e.g. many RDs close if 6 consecutive payments are skipped).
Is the interest on RD taxable?
Yes. RD interest is taxable just like FD interest, under “Income from Other Sources”. The bank may deduct 10% TDS if your total interest income exceeds ₹50,000 (₹1 lakh for seniors) in a year. Remember to declare all interest on your tax return.
How do I withdraw or close my FD/RD early?
For an FD, you can approach the bank to break it. You’ll typically get the principal back and interest up to that date, but at a lower rate. For an RD, you must close the entire account. The bank will pay your paid-in installments plus interest often at a reduced rate for completed months. Read your deposit contract: some RDs allow only partial break after a certain tenure, others require full closure.
