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Fixed Deposit vs Recurring Deposit: Which is the Better Option? Research Team | Posted On Monday, April 22,2019, 04:48 PM

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Fixed Deposit vs Recurring Deposit: Which is the Better Option?



Fixed deposits and recurring deposits are the most traditional forms of investment in India for risk-averse investors. These investment schemes provide fixed interest income along with safety of the deposits. Let’s discuss FD and RD and which one offers better interest income:

What is a Fixed Deposit?

Fixed deposit is an investment that offers a higher rate of interest than savings bank account. The amount that you want to invest must be paid as a lump sum and once the money is invested, it earns interest until maturity. The high rates of interest and flexible tenure ranging from 7 days to 10 days make it an ideal investment for short term and long term investments. One of the main criteria of fixed deposits is money cannot be withdrawn before maturity.

What is a Recurring Deposit?

The Recurring deposit is an investment option where a depositor invests a fixed amount each month for a fixed time period. You can opt to invest in RDs ranging from 6 months to 10 years. A Recurring Deposit allows you build up an attractive corpus at maturity. The interest rate in this kind of deposit scheme is compounded on a quarterly basis.

SEE ALSO: Difference Between Recurring And Fixed Deposit

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Features of FD and RD:


Fixed Deposit

Recurring Deposit


The tenure of the fixed deposit is flexible. The fixed deposit comes with maturity period ranging from 7 days to 10 years

The recurring deposit also comes with flexible maturity periods and can be for a minimum of 6 months to a maximum of 10 years.


Rate of Return

The rate of return on fixed deposit is higher compared to the savings bank account. Fixed deposits offer an interest rate of 6.6% to 7.4% on your deposits.

Generally, recurring deposit has a high rate of interest and so gives good returns. The current rate of recurring deposit offered by the banks varies from 4.5% to 7.9% per annum.

Loan Facility

The fixed deposits also offer loan facility by pledging the FD as security against the loan. You can avail up to 70%-90% value of your fixed deposit as a loan.

The bank offers loan facility on recurring deposit which is 80-90% of the amount in the account.


Tax Benefits

Tax Saver Fixed deposits with 5 year tenure enjoy Section 80C tax benefits.

Interest earned on RD is taxed.

Tax on Interest Income

Interest earned on your FD is taxed and TDS is deducted if the interest income exceeds Rs. 40,000 a year. It’s Rs 50,000 for senior citizens.

Interest earned on your RD is taxed and TDS is deducted if the interest income exceeds Rs. 40,000 a year.

It’s Rs 50,000 for senior citizens.


Withdrawal can be made at maturity. However, premature withdrawal is allowed on paying a penalty.

Recurring deposits can be withdrawn before maturity period by paying a penalty.


Fixed Deposit v/s Recurring Deposit – How do They Work?

FDs and RDs are both popular as they are risk-free investment schemes which offer high interest income. A major advantage of investing money in a fixed deposit is they offer fixed returns on maturity, along with capital protection. A fixed deposit is where the investors make a lump-sum investment and earn interest. The fixed deposit allows the principal to grow with compounding.

An RD is where you invest a fixed sum each month and earn interest. Both schemes allow withdrawals to be made after maturity.

FD v/s RD. Which is Better?

The primary reason for the difference is that in FD you invest a lump sum and the entire amount earns interest for the specified period. But, in a recurring deposit, the first instalment earns interest for 12 months, the second for 11 months, third for 10 months and so on. Due to this variation, a fixed deposit is able to earn more on maturity.

What Should You Choose – FD or RD?

Both FDs and RDs are suitable investment options for investors who are looking for safety of deposits. People who want to invest a lump sum can opt for fixed deposits as it provides capital protection as well as good interest income.

Recurring deposits are suitable for investors who are planning to save a portion of monthly salary by investing in a deposit that helps them reach financial goals over time by earning compound interest. Many a time investors are confused, if they should invest in an RD or an FD. Both FD and RD are fixed investment plans offered by the banks and other financial institutions. However, the choice depends on the investor’s financial goals and investing capacity.

SEE ALSO: Fixed Deposit Interest Rate

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