Deciding between a Fixed Deposit (FD) and a Recurring Deposit (RD) can be tricky. Both offer savings but cater to different needs. Making a due comparison between the both can help you determine the best option for your financial goals. Whether you prioritise growing a lump sum or building savings gradually, understanding these deposits empowers you to make an informed decision. 

Understanding Fixed Deposits

Fixed Deposits (FDs) are popular investment options offered by financial institutions. Here's the essence of this investment tool:

  • Deposit and Tenor: You invest a lump sum amount for a predetermined period (ranging from days to years).

  • Guaranteed Returns: FDs offer attractive, fixed interest rates throughout the chosen tenor.

  • Security and Liquidity: Your principal amount is guaranteed by the issuer, providing security. However, early withdrawals typically incur penalties, limiting immediate access to funds.

  • Ideal for Low-risk Investors: FDs are ideal for risk-averse individuals seeking a safe haven for their savings while earning predictable returns.

Understanding Recurring Deposits

Recurring Deposits (RDs) are a unique savings tool offered by banks and post offices. Here's how they work:

  • Regular Deposits: You commit to depositing a fixed amount at regular intervals.

  • Habit Building: RDs encourage a disciplined savings routine, perfect for building a financial nest, gradually.

  • Compounding Interest: Interest is compounded typically quarterly, allowing your savings to grow steadily over time.

  • Flexibility: Some RDs offer premature withdrawal options with reduced interest, providing some access to funds

Comparison Between Fixed Deposit and Recurring Deposit

If you are wondering which is better, looking at the differences between FD and Recurring Deposit in the table below can give you clarity. 

Particulars

Fixed Deposits 

Recurring Deposits

Deposit Frequency

Only once during the entire tenor

Each month till the end of the tenor

Tenor

7 days to 10 years

6 months to 10 years

Minimum Investment

₹1,000

₹100

Ideal For

Investors wishing to make a lump sum investment 

Investors wanting to invest small sums of money regularly 

Tax Benefits

With 5-year tenor FDs, you can claim the invested amount as a deduction under Section 80C of the Income Tax Act, 1961, up to ₹1.5 Lakhs in a financial year

Recurring deposits do not offer any tax benefits

Interest Payout

Receive the interest from an FD on a monthly, quarterly, half-yearly or annual basis or at maturity

Paid out at the time of maturity

Renewal Facility

Available

Not available

FD vs RD

RD or FD: Which is Better?

Assuming that FD and RD provide the same rate of 7.2%, this table provides the returns you can earn from both investment tools. See the results below to decide which investment option may be ideal for you.

Tenor (a)

Fixed Deposit Amount (b)

Interest Earned on FD (7.2% p.a.) (c)

FD Maturity Amount (d)

Recurring Deposit Amount p.m. (e)

Interest Earned on RD (7.2% p.a.) (f)

RD Maturity Amount

Difference (c-f)

1 Year

₹24,000

₹1,786

₹25,786

₹2,000

₹957

₹24,957

₹829

2 Years

₹48,000

₹7,410

₹55,410

₹2,000

₹3,771

₹51,771

₹3,639

3 Years

₹72,000

₹17,301

₹89,301

₹2,000

₹8,581

₹80,581

₹8,720

4 Years

₹96,000

₹31,930

₹1,27,930

₹2,000

₹15,535

₹1,11,535

₹16,395

5 Years

₹1,20,000

₹51,814

₹1,71,814

₹2,000

₹24,793

₹1,44,793

₹27,021

Facilities offered in FD and RD

Now that you have seen the difference between FD and RD, take a look at the common facilities offered by these investment vehicles.

  • Mode of Operation

You can open fixed and recurring deposits online from the comfort of your own home by using the net banking facility. Alternatively, you can open them through offline mode by visiting the nearest bank branch.

  • Nomination Facility 

Both FDs and RDs offer the facility to nominate an individual for your account. This makes it easy for your beneficiaries to claim the proceeds from your account in the event of your demise.  

  • Joint Holding Facility

You can open fixed and recurring deposits either individually or jointly with other individuals. Both investment options allow you to add up to three holders, including yourself.

  • Ability to Open Accounts for Family Members

FDs and RDs allow you to open accounts in the name of other individuals or family members. This enables you to save for their future. For example, if either of the accounts is under your child’s name, they can use it to cover higher education costs. 

FD and RD Taxability

As far as taxability is concerned, both fixed and recurring deposits are very similar. The interest you receive from an FD and an RD is fully taxable. The rate of tax depends on the income tax slab rate you fall under. 

 

For instance, if you fall under the 20% slab rate, the tax rate for interest earning will be 20%. That’s not all. For FD and RD, the financial institution is obliged to deduct 10% TDS if the total yearly interest earned exceeds ₹40,000. This is ₹50,000 for senior investors.

 

However, in terms of taxability, FD and RD differ in one aspect. In the case of a tax-saving FD or an FD with a 5-year tenor, you can claim tax benefits under the Income Tax Act. 

 

The invested amount can be claimed as a deduction from your gross income under Section 80C of the Income Tax Act, 1961. The maximum amount of deduction available is ₹1.5 Lakhs in a financial year. However, this is not available for a recurring deposit.

Disclaimer

The information provided by BFDL is related to the rates provided by Banks and Deposit taking NBFCs as available from public domain and under no circumstances is intended to be source of advice or recommendation of any financial investment advice or endorsement of any sort. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers and use of such information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. Display of any intellectual property along with the related product information does not imply BFDL’s partnership with the owner of the intellectual property of such products and is solely for the purpose of information, unless otherwise provided by BFDL.

Frequently Asked Questions

What is the deposit frequency for recurring deposits, and what are the payment modes available?

A recurring deposit is usually offered with only monthly deposit frequency and is usually debited directly from the bank account linked with the deposit.

Can recurring deposits be made in joint names?

Yes. You can choose to open a joint recurring deposit with either one or two individuals. However, the first holder would be the one responsible for making deposits on time and also getting to enjoy the maturity amount.

What happens to the interest rates of FDs and RDs if the existing interest rates increase or decrease?

Once you book a fixed or a recurring deposit, any change in the interest rates will not matter. You will continue to enjoy the same FD and RD interest rates at the time of booking. The new rates will only be applicable for new deposits.

What is the cause of premature withdrawal in the case of FDs and RDs?

In the case of fixed deposits, premature withdrawal of FD is permissible but financial institutions usually levy a small penalty. You may also earn at a lower interest rate when you withdraw earlier than your chosen tenor. For recurring deposits, however, premature withdrawal is not permitted for the first three months except in the case of the death of the investor.

How can I renew my RD?

You cannot renew a recurring deposit. Upon maturity, the principal amount, along with interest accrued on it, will be credited to your savings bank account. That said, you can also choose to convert the maturity proceeds of an RD into an FD upon maturity.

Are RD and FD rates the same?

No, RD and FD interest rates are not the same. The rates for both these investment options depend on various factors, such as the tenor and investment amount. Additionally, FD and RD interest rates also vary for each issuer.

Which is better: RD, FD or PPF?

If you compare PPF vs RD vs FD interest rates, PPF interest rates are often higher. Additionally, with PPF, you receive tax advantages on your invested amount, interest, and maturity value. However, in the unfortunate event of death, investments in PPF would halt.

 

The PPF return would then be determined by the amount invested up until the investor's demise. But, in the case of guaranteed or fixed return plans, the nominee receives the entire maturity value even if the investor dies prematurely.

Are the RD rates the same for everyone?

No, RD rates depend on various factors like the age of the investor, the amount of investment, and the investment tenor. Moreover, most banks and NBFCs offer higher interest rates to senior citizens.

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