Understanding Fixed Deposits and Recurring Deposits When it comes to safe investment options, fixed deposit (FD) and recurring deposit (RD) are two of the most popular choices in India. Both offer guaranteed returns and are ideal for risk-averse investors. However, they work differently, and choosing the right one depends on your financial goals and savings capacity.
In this guide, we’ll compare fixed deposit vs recurring deposit, their interest rates, benefits, and drawbacks to help you decide which is better – recurring deposit or fixed deposit.
%20vs%20Recurring%20Deposit%20(RD)%20%E2%80%93%20Which%20is%20Better.png "Fixed Deposit (FD) vs Recurring Deposit (RD) – Which is Better?")
What is a Fixed Deposit (FD)?
A fixed deposit (FD) is a savings instrument
where you deposit a lump sum amount for a fixed tenure at a
predetermined fixed deposit interest rate. Banks and
financial institutions offer FDs, and the interest remains unchanged
throughout the tenure.
Key Features of Fixed Deposits:
- Lump-sum investment – You invest a one-time amount.
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Fixed interest rates – Rates are locked at the time of opening the FD.
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Flexible tenures – Ranging from 7 days to 10 years.
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Higher interest for longer tenures – Generally, longer FDs earn more.
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Premature withdrawal penalty – Breaking an FD early may attract a small penalty.
If you have a large amount to invest at once, an FD is a great choice.
However, if you want to save small amounts monthly, a recurring deposit (RD) might be better.
What is a Recurring Deposit (RD)?
A recurring deposit (RD) is a savings plan where
you deposit a fixed amount every month for a set period. Like FDs, RDs also
offer fixed interest, but the investment is made in installments rather than
a lump sum.
Key Features of Recurring Deposits:
- Monthly investments – Ideal for salaried individuals.
- Fixed interest rates – Similar to FDs, but calculated quarterly.
- Flexible tenures – Usually between 6 months to 10 years.
- Lower minimum investment – You can start with as little as ₹500/month.
- Premature withdrawal penalty – Early closure may reduce interest earnings.
For those who cannot invest a large sum at once, an RD is a disciplined way
to save money monthly.
Fixed Deposit vs Recurring Deposit: Key Differences
To decide RD vs FD which is better, let’s compare
them on different factors:
1. Investment Method
·
FD: Requires a lump-sum deposit.
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RD: Requires monthly deposits.
2. Interest Calculation
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FD: Interest is calculated on the entire principal amount.
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RD: Interest is calculated monthly but paid at maturity.
3. Suitability
·
FD: Best for those with a large one-time surplus.
·
RD: Best for regular income earners who want to save monthly.
4. Returns Comparison
·
FD: Generally offers slightly higher returns for the same tenure.
·
RD: Returns are good but slightly lower than FDs due to monthly
compounding.
5. Liquidity
·
Both allow premature withdrawals but with penalties.
·
FD may be better for emergency funds since the entire amount is already
deposited.
Fixed Deposit Interest Rates vs Recurring Deposit Rates
Interest rates for both fixed deposits (FDs) and recurring deposits (RDs)
vary across different banks. Let's look at current rates from major
banks:
For State Bank of India (SBI):
-
FD interest rate for 1 year: 6.50%
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RD interest rate for 1 year: 6.25%
For HDFC Bank:
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FD interest rate for 1 year: 7.00%
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RD interest rate for 1 year: 6.75%
For ICICI Bank:
·
FD interest rate for 1 year: 6.75%
·
RD interest rate for 1 year: 6.50%
As we can see from these examples, fixed deposit interest rates tend to be
slightly higher than recurring deposit rates for the same tenure. Typically,
FDs offer about 0.25% to 0.50% higher interest compared to RDs with the same
bank and duration.
However, the key advantage of recurring deposits is that they allow you to start with much smaller monthly investments (as low as ₹500 in most banks), making them more accessible for regular savers who may not have a large lump sum available for fixed deposits.
