Web Trader MT5 
You have some money to save. Should you deposit it all at once or a small amount each month?
This is the big question between Fixed Deposits (FD) vs Recurring Deposits (RD). Both are safe options from banks, but they work very differently.
FD vs RD is all about how you save. FDs need a considerable amount upfront – like putting in ₹1 lakh at one shot. RDs allow you to save small amounts every month – maybe ₹5,000 every month.
Understanding the difference between FD and RD helps you to choose the right one. This article will show you the difference between FD vs RD – which fits your style? Let’s find out.
What Is an FD (Fixed Deposit)?
A Fixed Deposit (FD) allows you to deposit a large amount of money in the bank for a certain time at a fixed interest rate.
You make a single deposit. This money is subject to interest in the bank. At the expiry of the time period, you receive your initial cash plus the interest accrued.
An example of FD vs RD is here – assume you invest ₹1,00,000 in an FD of 1 year at 6% interest, you will receive ₹1,06,000 at the end of 12 months.
The FD vs RD is different as FDs require all the money on day one. FDs cost more than conventional savings accounts.
What Is an RD (Recurring Deposit)?
A Recurring Deposit (RD) allows you to save a constant sum of money monthly over a period of time.
The difference between RD vs FD is that RDs have small monthly payments rather than having a single, large deposit.
You deposit the same sum every month – say ₹5,000. The bank charges interest on your accumulated balance. At the expiry of the time, you receive all the monthly deposits and interest earned.
RDs are popular among people with regular salaries and a monthly income. You save without a big amount to start.
To illustrate, a deposit of ₹5,000 every month over 24 months at 6% interest. You invest ₹120,000 in total and receive that with accumulated interest.
The distinction between FD and RD account is easy to learn – RDs require monthly discipline, whereas FDs require initial funds.
FD vs RD — Key Differences
The key difference between FD and RD lies in how you deposit money and earn returns.
FDs follow the “deposit once, earn interest” while RDs use the “deposit regularly, build wealth” approach.
Here is a simple FD vs RD comparison table to highlight their distinctions:
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
| Deposit Type | One lump-sum amount | Fixed monthly installments are deposited regularly. |
| Tenure | 7 days to 10 years. | 6 months to 10 years |
| Returns | Fixed rate on the full amount for the entire period | Fixed rate, but each installment earns interest for a shorter time |
| Flexibility | Locked until maturity, penalties for early withdrawal | Needs monthly discipline, penalties for missed payments |
| Suitability | Ideal for people with a lump sum of money | Best for regular monthly income earners |
| Taxation | Interest taxable per income slab | Interest taxable per income slab |
There’s no difference in the FD vs RD in banks – both work similarly across different banks. The FD vs RD difference comes down to whether you deposit once or monthly.
FD vs RD Interest Rates
The difference between FD and RD interest rates indicates that FDs tend to yield a little more. This occurs despite their similar advertised rates.
- FD Interest Rates: Your entire money begins to accumulate interest on day one. This full amount allows banks to lend longer, hence they will provide slightly better rates. The present FD rates are between 5-7% per annum.
- RD Interest Rates: A monthly payment only earns interest on the remaining period. The initial deposit you make has interest for the entire period. But your monthly deposit earns only one month’s interest.
This is the difference between FD and RD interest rates in your final payout. FDs earn additional overall interest since the entire sum is subject to a longer term, despite the identical advertised rate. More people favoured their safety in bank deposits.
Now they take more risks on other investments. These may be stocks or mutual funds. The rates fluctuate with decisions of the central bank on repo rates. The staggered deposit model of RDs automatically produces a reduced total interest rate than FDs.
Returns — FD vs RD with Example
Let’s take the difference between FD and RD with an example: cases of 1, 20,000 total investment in a year at the interest rate of 6%.
- Fixed Deposit Case: You have a 1-year lump sum of 120,000 in the form of a deposit at 6% per annum. Interest earned: ₹1,20,000 x 6% = ₹7,200 Maturity amount: ₹1,27, 200
- Recurring Deposit Case: You make a deposit of 12 instalments of ₹10,000 every month at a rate of 6 per annum. Capital invested: ₹1,20,000 Interest earned: about ₹3,981 Maturity value: ₹1,23,981.
The FD will pay ₹3219 interest as compared to the RD. Why? The whole FD is of one year’s interest. The interest received on each deposit in RDs is only for the time taken.
This FD vs RD example makes it clear that FDs will produce more returns when you hold the lump sum at the beginning.
While FDs and RDs offer guaranteed returns, some investors explore trading strategies to potentially enhance their portfolio returns.
Account Type & Taxation Rules
The difference between the FD and RD account structures is simple. FDs deal with a single large deposit. RDs take care of various monthly deposits in the long run.
Both of them can be opened in commercial banks, small finance banks, and post offices. The procedure remains the same in both.
FD vs RD account taxation works in the same way:
- Tax regulations: The interest on both FDs and RDs is completely taxed. This interest will be in addition to your annual income. The tax is paid at your income tax slab rate.
- TDS regulations: Your total interest on all deposits exceeding ₹40,000 per year (₹50,000 in the case of senior citizens) gets deducted by the bank in advance.
Both of these accounts are taxed identically. The big distinction is in how you deposit money, lump sum or instalments. Note, when comparing these options, follow post-tax returns.
Pros and Cons of FD vs RD
To make the decision, FD vs RD, which one is better to use in your situation, here are the advantages and disadvantages of both.
Fixed Deposit Pros:
- Greater returns than RDs of the same amount.
- One-time deposit – no tracking required monthly.
- It is open to borrowing against your FD.
Fixed Deposit Cons:
- Needs big upfront money
- Money remains secured, and there are fines for early withdrawal.
Recurring Deposit Pros:
- Establishes habitual savings.
- Begin with small payments such as ₹500 a month.
- Ideal with constant monthly payments.
Recurring Deposit Cons:
- Lower total returns than FDs
- Penalties for default on monthly payments.
The FD vs RD pros and cons present both options that suit distinct circumstances. Determining the better option depends on whether you have a lump sum of money or you like saving per month.
For investors seeking higher returns, learning about different types of trading can complement traditional saving methods. Determining the better option depends on whether you have a lump sum of money or you like saving per month.
Which Is Better — FD or RD?
The question of whether FD vs RD is better is a matter of your money position, not of which one is superior in general.
Use FD when you have a lump sum – such as bonus cash, an inheritance, or savings – and would like to earn slightly more on it.
RD is the best option when you lack big money initially but have regular income. Monthly discipline assists RDs in the development of savings.
Between FD vs RD, which is better depends on your financial objectives and present cash flow. Both are strong building blocks of your money planning.
Got a lump sum? Try FD. Want monthly saving habits? Pick RD.
You can also compare these safe accounts with trading forex or trading with CFDs. STARTRADER provides guides and platform options for beginners to carefully explore.
FAQs
The main difference is the deposit method. An FD requires a one-time lump-sum deposit, whereas an RD involves making fixed monthly deposits over a set tenure.
For the same principal amount, interest rate, and tenure, an FD usually offers better effective returns because the entire amount earns interest for the full duration.
Conclusion
Both FDs and RDs assist you in saving money in a safe manner with guaranteed returns. The choice is simple.
FDs are effective when you have a large sum to deposit. RDs are applicable when you wish to save smaller amounts every month.
FD vs RD, which is better, depends on your money situation. Got a lump sum sitting around? Try FDs. Wish to establish saving habits based on the monthly pay? RDs might fit better.
Check your cash flow and choose what suits you. The question of FD vs RD, which is better, is one of handling money. Choose the one that seems appropriate and open an account.
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