Have you ever found yourself wondering about the practical ways to boost your savings, and could not find a way to actually start? Let’s say, for example, you just received your annual bonus. It is a lump sum, and you don’t want it sitting idle in the savings account. Or perhaps you started earning a regular income and want to cultivate the habit of saving some amount every month. The two options often recommended are FD and RD, but which should one choose?
To make a good decision, it is important that one understands the difference between RD and FD because although both are safe and popular methods for saving, they are completely different in operation. In his blog, we will cover FD vs RD. Let’s dive in.
What Is a Fixed Deposit?
The word Fixed Deposit signifies, under the simplest terms, that a certain sum of money is deposited for a specific period. One cannot touch this money until the expiry of the tenure, and in return, one will get a fixed interest. Beginning from day one, the interest rate is fixed and locked for the entire duration, say from six months or even five years, and one is assured of the exact return amount at maturity.
For example, let’s say you invest ₹50,000 in an FD for 2 years at an interest rate of 6.5% per year. By the end of the tenure, your money will grow with interest, and you’ll receive around ₹57,000 (including interest) when it matures. It’s a safe and steady way to grow your savings without any risk.
What Is a Recurring Deposit?
A Recurring Deposit, or RD, works a little differently. You make monthly deposits of a small, fixed amount rather than a large one. Over time, these monthly installments are used for both building and interest. It's similar to sowing a seed each month and seeing it flourish. This approach is particularly helpful if you want to build your savings over time but don't have a lot of money ready to invest. A lot of working professionals start an RD to get into the habit of saving regularly.
For example, if you deposit ₹2,000 every month into an RD for 2 years at an interest rate of 6.5% per year, you’ll have saved ₹48,000 over time—and with the interest earned, your final amount will be around ₹52,700. It’s a simple, low-risk way to grow your money bit by bit.
Understanding this basic recurring deposit meaning can already help you see how it stands apart from FDs in structure and purpose.
FD vs RD: Interest Rates and Returns
When it comes to interest rates, both FDs and RDs typically offer similar rates, especially when opened with the same institution for the same tenure. However, due to the way money is invested, the actual return differs.
In an FD, you earn interest on the full amount from day one, whereas in an RD, the first month’s deposit earns interest for the entire tenure, but the second deposit earns it for one month less, and so on. That's why this difference impacts the maturity amount.
So, while the FD vs RD interest rates might look identical on paper, the compounding method makes a clear distinction in real-world returns.
The Core difference between RD and FD
The key difference between RD and FD lies in how and when you deposit the money. FDs are a one-time commitment—you invest a big amount and let it grow. RDs, on the other hand, involve a series of smaller investments made every month.
Here’s a simple comparison to make it easier:
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
| Deposit Method | One-time lump sum investment | Monthly fixed investments |
| Interest Earnings | Higher returns as the full amount earns interest from day one | Slightly lower returns as deposits are made gradually |
| Best For | People with a lump sum to invest | People who want to save regularly over time |
| Example | Amit invests his yearly bonus in an FD | People who want to save regularly over time |
| Tenure Options | Flexible—a few months to several years | Flexible—a few months to several years |
| Liquidity | Can close early with a minor penalty | Can close early too, but with stricter rules and possible penalties |
| Tax Implications | Interest is taxable; TDS applies if the interest crosses the set limit | Same as FD—interest is taxable, and TDS may apply if it crosses the limit |
| Key Benefit | Great for growing a large amount safely with fixed returns | Same as FD—interest is taxable, and TDS may apply if it crosses the limit |
Which One is Better?
It depends on how you want to save your money.
If you have a large amount of money now and want to keep it safe and grow it, then a Fixed Deposit (FD) is better. You put all the money in at once and get more interest.
If you don’t have a big amount now but want to save a little every month, then a Recurring Deposit (RD) is better. You keep adding a small amount every month and watch your money grow slowly.
So, both are good. You just need to choose the one that fits you. If you want to save big money at once, go for an FD. If you want to save step by step, go for RD.
Final Thoughts,
Choosing between an FD and an RD isn’t about which one is better—it’s about which one suits your financial situation, financial goals, income pattern, and saving discipline will guide the right decision. The difference between RD and FD is not just about numbers but about behavior and intention.
In the end, whether you go with a Fixed Deposit or a Recurring Deposit, you’re taking a step toward a more secure financial future. And that’s a win, no matter which way you look at it.
