We Indians have a soft corner for risk-averse investments. And, why not? Diversifying your finances between market and non-market instruments awards you a well-balanced financial portfolio. This philosophy is what makes fixed and recurring deposits two of the safest and most preferred investment vehicles.
Even though both FDs and RDs offer guaranteed returns and are not market-linked, they do feature significant differences. Let's understand them in detail.
A Fixed Deposit (FD) is a secure investment option where you deposit a lump sum amount with a bank or financial institution for a fixed tenure at a predetermined interest rate. The interest is compounded periodically and can be paid out at regular intervals or on maturity.
Since FDs offer stable and guaranteed returns, they are ideal for risk-averse investors looking for a safe way to grow their savings. The tenure can range from a few months to several years, and premature withdrawal may attract a penalty.
A Recurring Deposit (RD) allows you to invest a fixed amount regularly over a predetermined period instead of depositing a lump sum. It is ideal for individuals who want to cultivate a disciplined savings habit.
The interest rate on RDs is similar to FDs, and the maturity amount includes both the principal and accumulated interest. Like FDs, RDs also have a fixed tenure, and premature withdrawal can carry a penalty.
| Differentiating Parameter | Fixed Deposit (FD) | Recurring Deposit (RD) |
| Frequency of deposits | As the name suggests, a fixed deposit is an instrument where both the interest rate and the deposit amount remain fixed until maturity. Investors can open an FD with only a lump sum, and they cannot keep depositing more money in the same FD. | A recurring deposit doesn't function on lump sum payments. Here, investors deposit a pre-fixed amount every month. However, the rate of interest of an RD is fixed at the time of opening the account and remains the same until the entire RD tenure. |
| Minimum deposit | The minimum deposit amount to open an FD depends entirely on the financial institution you choose. Typically, investors can open an FD account with as little as Rs. 100. | Similar to FDs, the minimum deposit amount for RDs also depends on the financial institution you choose. Typically, investors can open an RD with as little as Rs. 1000. |
| Tenure | The tenure range for an FD is relatively more flexible as the investment is a lump sum. So, it can range from a few days to several years. | The tenure range of an RD is always at least a few months, as this is a monthly deposit scheme. Usually, RDs offer a minimum tenure of 6 months, and maximum tenures can range up to several years. |
| Taxation | You can claim a tax rebate on any FD up to Rs. 1.5 lakhs under Section 80C of the ITA. | Recurring deposits are not tax-exempt under Section 80C of the ITA or otherwise. |
| Nature of returns | Depending on your FD terms and conditions, you can receive interest payout on maturity or at regular intervals that are monthly, quarterly, half-yearly or annually. | Most RDs pay interest on maturity along with the principal amount. |
| Interest Rates | Since fixed deposits are lump sum investments, which may earn compound interest depending on the interest payout clause, they tend to earn higher interest returns. | Since recurring deposits accept monthly payments and earn compound interest on smaller amounts, they tend to earn lower interest rates than a fixed deposit. |
| Liquidity | Fixed deposits come with soft lock-ins, meaning you can break an FD before maturity but may be charged a nominal penalty, which is deducted from the interest earned. However, you will be entitled to the rest of the interest amount. | When it comes to liquidity, RDs are similar to FDs. You can break an RD before maturity but will most likely be charged a penalty which is usually deducted from the interest accrued. You're, however, entitled to the remaining interest along with the principal amount. |
No one instrument is better than the other. Both FDs and RDs are safe options that offer modest guaranteed returns. However, the decision to pick one depends on your current financial goals and cash flow.
If you have a lump sum amount to invest and want to earn stable returns, an FD is the better option. On the other hand, if you prefer saving smaller amounts regularly while still earning interest, an RD is more suitable.
Both options offer low risk and assured returns, making them ideal for conservative investors. However, FDs typically provide slightly higher interest rates than RDs, making them more attractive for long-term wealth accumulation.
Want to conveniently open a fixed deposit or explore other financial instruments? Well, then log on to the Tata Capital Moneyfy website or download the Moneyfy's mutual fund investment app and open yourself to a world of investment opportunities that include fixed deposits, mutual funds, NPS, SIPs and more.
Click here to register online and learn more about how Moneyfy can help you manage your wealth.
FDs typically offer slightly higher returns than RDs due to the lump-sum investment earning interest for the entire tenure. In RDs, monthly contributions result in a staggered investment, leading to comparatively lower returns.
Consider your investment capacity (lump sum vs. regular contributions), financial goals, desired tenure, interest rates, liquidity needs, and tax implications. FDs are better for those with a lump sum amount aiming for higher returns, while RDs benefit individuals seeking disciplined, periodic savings.
Yes, both FDs and RDs allow premature withdrawals. However, doing so usually incurs penalties. It's advisable to check specific terms with your bank before withdrawing funds early.
RDs offer more flexibility for individuals who prefer to save smaller amounts regularly, accommodating those with a steady income. FDs require a lump-sum investment, which may be less adaptable for some investors.
Click the “Allow” button to receive notifications
We're constantly crafting offers and deals for you. Get delivered straight to your device through website notifications.
All you have to do is click on “Allow”.
Now keep a track on your favourite fund
Go to the watchlist page to remove a fund from the list.
No funds are added to watchlist
Add your favourate funds to watchlist to keep them handy
No funds are added to portfolio
Add your favourate funds to portfolio to keep them handy
Contact Us 
23 April 2025
6 mins read
Twitter
Facebook
Previous Post
