Fixed Deposit vs Recurring Deposit

There is a whole world of investment options out there, with many ways to increase your savings. Fixed deposits and Recurring deposit are among the best ways to mobilize your idle savings and have them work for you. 

Updated On - 05 Sep 2025
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FD vs RD

Common Features of FD and RD

The common features of FD and RD are given below:

  1. Premature withdrawal -  Certain FD and RD types allow for early withdrawal with a penalty. In the instance of Axis Bank, for example, you can withdraw up to 25% of the fixed deposit's original amount without incurring any penalties.
  2. However, if you make more withdrawals or the sum reaches 25%, you will be charged a premature penalty.
  1. Returns - The amount of your FD or RD's maturity can be calculated instantly when you invest. Based on the tenure, quantity, and rate of interest, you may estimate the maturity amount.
  2. This lets you to plan ahead of time by tying your financial goals to the quantity of your FD or RD. You can save money for things like your child's school, marriage, a foreign trip, house renovations, and more.
  1. Fixed Investments - Fixed-income investments include both FDs and RDs. Their interest rates are set at the start of the term and remain constant during the duration of the investment. Furthermore, interest rates are unaffected by market movements.
  2. The bank and other financial institutions guarantee the returns or maturity proceeds of both investment alternatives.
  3. Loan facility - You can take out a loan against both fixed and recurring deposit amounts. The money you withdraw can be used for anything you like. The maximum amount that can be borrowed varies from bank to bank.

Differences Between FD and RD

Pointers

Fixed Deposits

Recurring Deposits

Pointers

Fixed Deposits

Recurring Deposits

Purpose

Enables investors to mobilize idle savings and earn with a higher rate of interest than regular savings bank account.

Incalculates a regular habit of savings among the public.

Duration

Minimum: 7 days

Maximum: 10 years

Minimum: 6 months

Maximum: 10 years

Eligibility

All Indian residents and Hindu Undivided Families (HUFs).

All Indians residents and Hindu Undivided Families (HUFs)

Compound Interest and Impact of Compounding Frequency

Interest on investments made in a FD compounds, and earns interest on the new balance after each compounding. The following formula explains this further: Where: A = Final Amount that will be received P = Principal Amount. r = Annual nominal interest rate. n = number of times the interest is compounded per year. t = number of years

Most banks that offer Recurring Deposit usually compound interest on a quarterly basis. Compound interest is interest that is added to the principal amount so that from then on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding. The following formula gives you the total amount one will get if compounding is done: Where: M = Maturity value. R = Monthly instalment. n = Number of quarters. i = Rate of interest/400.

Renewals and withdrawals of Fixed Deposit Accounts

  1. Rolling over of deposits for another term where term, in which the tenure can differ.
  2. Auto-renewal: The tenure of deposit doesn't change, but the interest rate depends on the prevailing interest rate at the time of renewal.
  3. Deposits can be encashed at maturity.
  4. Premature withdrawals are subject to penalties.
  5. Amounts being withdrawn above Rs.20,000 must be transferred to the depositors savings bank account.
  6. Amounts being withdrawn below Rs.20,000 can be taken in cash.
  7. For sweep-in facility and flexi-deposits, withdrawals are allowed on the interest accrued by the FD, the balance will then be held as a new deposit.
  8. No withdrawals are allowed for a minimum of 5 years in the case of tax-saving deposits.
  1. During the premature closure of the RD for reinvestment in a term deposit, interest will be paid to the account holder without reducing interest rate by 1% (as penalty).
  2. If the account holder does not stay with the bank after prematurely closing the account, the interest rate will be (whatever the interest rate was, minus 1% as penalty).
  3. Partial withdrawals are not allowed for RDs, but some banks offer a loan facility against the RD, where the RD must be pledged as collateral.
  4. Premature withdrawals are possible, but the rate of interest will be less than the base rate (which is around 8.40%).

Nominations under Fixed Deposit Schemes

  1. A nominee is the person named to receive the funds accrued in a particular FD upon the depositor's death.
  2. Nominee details required: Name, age, address, relationship with depositor, details of legal guardians.
  3. Only one nominee per deposit account.
  4. Proof of depositor's death required to claim funds.
  1. A nominee is the person named to receive the funds accrued in a particular RD upon the depositor's death.
  2. Nominee details required: Name, age, address, relationship with depositor, details of legal guardians.
  3. Only one nominee per deposit account.
  4. Proof of depositor's death required to claim funds.

Loan Facility

  1. Loans can be availed by keeping your FD as collateral.
  2. Loans are given as an alternative to those who need funds, but do not wish to break the deposit account prematurely.
  3. Most banks allow for loans in the range of 70% - 90% of the deposit value.
  1. Loans can be availed by keeping your RD as collateral.
  2. Loans are given as an alternative to those who need funds, but do not wish to break the deposit account prematurely.
  3. Banks offer loans for up to 90% of the deposit value.

Income Tax

  1. Income on FDs is taxed as per the depositors tax slab.
  2. Interest on FDs is calculated on an annual or cumulative basis, but it's taxed on an accrual basis - revenue is recognised when earned and expenses are recognised when incurred.
  1. Income on RDs is taxed as per the depositors tax slab.
  2. No TDS, but the investor needs to include the interest accrued during the year in the IT return.

So Which One Should you Invest in? Fixed Deposit or Recurring Deposit?

It all depends on your needs. A fixed deposit account earns interest in a compounding manner on the initial lump sum deposited. The entire amount earns money for 1 year, but in the case of recurring deposits, the first instalment earns interest for 12 months, the second for 11 months, the third for 10 months, and so on until the end of the deposit term.

In real time, you make more money with a fixed deposit (As illustrated by the below example), but it does not have the flexibility of a recurring deposit account in terms of being able to deposit smaller amounts as and when they become available to you.

FAQs on FD vs RD

  • Which is better FD or RD in SBI?

    The interest rates on fixed deposit are much higher than recurring deposits. Hence, investing in a FD is better than investing in an RD.

  • Is RD tax free?

    No, RD is not tax free.

  • Is FD tax free?

    FD is not tax free.

  • Which of the two deposit schemes offer a higher rate of interest: Fixed Deposit, or Recurring Deposit?

    The rate of interest offered by fixed and recurring deposits depends on many factors such as the amount deposited, the tenure of the deposit, and current market rates. In most cases a similar rate of interest is offered for both fixed deposits and recurring deposits. 

  • Is it possible to withdraw money before the maturity period in case of both recurring deposit and fixed deposit schemes?

    Yes, most of the banks allow premature withdrawal of both recurring deposits and fixed deposits with a small penalty. However, it is advisable to check with the bank concerned to see if this facility is available. 

  • Which option is more flexible in terms of deposit amounts?

    The advantage with recurring deposit is that you can make small deposits at regular intervals, while fixed deposits require you to submit a lump sum amount at the beginning of the tenure. 

  • Is it advisable to invest in fixed deposits or recurring for short-term financial goals?

    Depending on your personal financial goals and tenure choices, both fixed deposits and recurring deposits can be suitable for your short-term goals. However, a recurring deposit might be a better option for a shorter duration because it allows monthly deposits. 

  • Can I avail myself of any tax benefits with fixed deposits or recurring deposits?

    Yes, you can avail yourself of tax benefits with both FDs and RDs. However, under certain conditions, investments in tax-saving FDs (with a lock-in period of five years) are eligible for tax deductions under Section 80C of the Income Tax Act. 

  • Can I avail myself of a loan against fixed deposits and recurring deposits?

    Yes, you can avail yourself of a loan against both FD and Rd. Most of the banks provide this facility. This allows you to leverage your deposits without breaking them prematurely. 

  • Between fixed deposit and recurring deposit, which should I choose for my investment needs?

    Your decision to choose between RD and FD should be based on your investment objectives, tenure preference, liquidity needs, and risk appetite. Consider interest rates, liquidity, and penalties for early withdrawals before deciding. Talk to a financial advisor to help you make an educated decision. 

  • Is the rate of interest the same for fixed deposits throughout the tenure?

    Yes, the rate of interest is the same for fixed deposits throughout the tenure. 

  • How can I open a fixed deposit account?

    You can open a fixed deposit account at any bank branch or online through the bank’s official website. You will need to fill in the application form and provide proof of identity, address, PAN card, etc.  

  • Can I apply for both RD and FD at the same bank?

    Yes, you can apply for both RD and FD at the same bank. 

  • Can I apply for multiple RD at the same bank?

    Yes, you can apply for multiple RD at the same bank. 

  • How can I open a recurring deposit account?

    To open an RD account, visit the bank branch or use the online banking portal, fill out the application form, and provide the necessary documents such as identity proof, address proof, and PAN card. Once the account is opened, set up the monthly deposit mandate, and your RD will be active. 

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