Fixed Deposits vs Recurring Deposits | RD vs FD Differences

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Fixed Deposits (FDs) and Recurring Deposits (RDs) are two super safe savings options offered by banks that help you grow your money with guaranteed returns.

FDs and RDs share some similarities - both offer fixed returns and are taxed identically.

Despite these similarities, they share many differences.

For example: 5-year tax-saving FDs can help reduce your taxation load under IT Section 80C, while RDs don’t qualify as tax-saving instruments.

In the following paragraphs, we explore all such differences between FDs and RDs to help you identify the right investment for you. So, let’s go!

FDs are Single Lumpsum Investments, RDs are a Series of Investments

Imagine you just received a bonus and want to invest it. With an FD, you can go all in - invest a lumpsum amount for a specific period.

On the other hand, RDs are a series of investments where you will have to divide your bonus into equal pieces and invest it every month until maturity.

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RDs are perfect if you don't want to (or can’t) invest a large sum in one go or if you want to save a part of your income regularly.

Note: Don’t worry about the logistics of RD. You don’t have to manually invest every month. The investments happen automatically.

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However, if you can invest the money at one go, always prefer FDs over RDs to build a larger corpus.

Wonder what’s the reason behind this? Here’s why.

Minimum Investment for FDs is Rs. 5,000 | RDs Require Just Rs. 100 per Month

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Most financial institutions have a minimum investment requirement for fixed deposits ranging between Rs. 1,000 and Rs. 5,000.

Also, not to forget, fixed deposits are one time investments where no top-ups are possible. If you wish to invest more, you'll have to open a new FD account.

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RDs can be started with as low as Rs. 100 per month/quarter and in multiples of Rs. 10 thereafter.

Fixed Deposits Help You Generate a Bigger Corpus than Recurring Deposits

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Even though the interest rates on FDs and RDs are almost identical, FDs can help you build a bigger corpus than RDs.

This is because in an FD, your entire investment starts earning interest from day 1.

However, in an RD, only your 1st instalment earns interest for the full tenure, the 2nd instalment will earn interest for one month less, the 3rd instalments will earn interest for 2 months less and so on.

Illustration: Suppose you invest Rs. 3 lakh in an 8% FD for 1 year. At the same time, you also start an 8% FD of Rs. 25,000 per month for 1 year. In both the cases, your total investment would be Rs. 3 lakh. After a year, you would have accumulated Rs. 3.24 lakh in your FD but just Rs. 3.13 lakh in your RD. A difference of more than Rs. 10,000!

Note: We have assumed annual compounding and no TDS to keep the example simple.

So, if you have the money at your disposal, FDs should be preferred over RDs to build a larger corpus.

RDs Attract Late Deposit Fees, FDs Don't

Fixed deposits and recurring deposits have fixed tenures. Any premature withdrawals from both attract penalties.

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When you withdraw prematurely from your FD or RD, the interest rate you get could be lower by 1-2% than the interest rate you had locked-in during the investment.

However, premature withdrawal is not the only event that attracts penalties in RDs.

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Penalty is charged on delayed instalments in case of RDs. Some banks may even close your recurring deposit account if you miss six consecutive instalments.

FDs are one time investments so safe from attracting penalties related to late deposits.

Fixed Deposits Help You Save Tax, Recurring Deposits Don’t

Who doesn’t like to save taxes?

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Tax-saving fixed deposits qualify for tax deductions under Section 80C of the Income Tax Act.

Investment up to Rs. 1,50,000 per annum can be claimed as a deduction under Section 80C. These special deposits come with a mandatory lock-in period of 5 years.

How does this work?

If you invest Rs. 1,50,000 in a tax saving fixed deposit, your total taxable income will be reduced to the tune of 1.5 lakhs. Thus, you’ll pay less tax.

Here’s an example, say your taxable income is Rs. 30 lakhs. Because you have invested in a tax-saving FD, your total taxable income will be Rs. 28.5 lakhs. Considering that this Rs. 1,50,000 would have attracted ~30% tax, you would pay ~Rs. 45,000 less tax for that financial year.

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RDs, however, don't offer any special tax benefits.

Fixed Deposits Have Auto Sweep in Facility, While Recurring Deposits Don’t

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The auto sweep-in facility allows you to automatically transfer any excess funds in your savings account to a fixed deposit.

Here’s an example:

Let’s say you activate the sweep-in facility such that amounts in excess of Rs. 50,000 in your savings account will get automatically deposited into FD.

Suppose you have Rs. 40,000 in your savings account and receive an inflow of Rs. 20,000 taking your savings account balance to Rs. 60,000. Now the sweep-in facility will get triggered and automatically invest Rs. 10,000 in FD.

Say, you set a limit of Rs. 1,00,000 in your savings account. And you have some excess funds, say Rs. 50,000. The sweep-in facility will trigger automatically and invest Rs. 50,000 in FD.

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Recurring deposits don’t enjoy the auto sweep-in facility like FDs.

Fixed Deposits Can be Auto Renewed, While Recurring Deposits Can’t

Upon maturity, if not withdrawn (and opted for auto renewal), fixed deposits get auto-renewed for the same tenure at the prevailing interest rates.

You can choose to auto renew only the principal, only the interest earned or the total corpus (principal + interest) as per your choice. This option may or may not be present depending on the financial institution.

However, recurring deposits do not enjoy the auto-renew facility. After the maturity of the RD, the entire corpus (principal + interest) comes back to the linked savings account.

Recurring Deposits Require Standing Instruction, FDs Don’t

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As RDs require periodic instalment payments, you need to set up standing instructions for your recurring deposits so that money can be automatically transferred from your bank account to your recurring deposit account.

You can set up the standing instruction online online or by visiting the physical branch.

Since FDs are one-time investments, no standing instructions are required.

You need a Bank Account to Start an RD, FDs Don’t Need a Bank Account

When you deposit money into an RD, you transfer it from your savings bank account through a standing instruction. It is necessary to have a savings bank account with the same bank where you wish to start an RD.

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To invest in an FD, you don’t need to have a savings bank account with the same bank.

However, to activate the auto-sweep facility, a savings account with the same bank is required.

Similarities Between Fixed Deposits and Recurring Deposits

Both FDs and RDs Attract TDS on their Interest

TDS → Tax Deducted at Source

TDS is charged on the interest only when your annual interest from deposits exceeds Rs. 40,000 (for non-seniors) or Rs. 50,000 (for senior citizens)

Banks deduct a TDS of 10% of the interest income from fixed deposits and recurring deposits if your PAN is linked to the deposit account.

If your PAN is not linked, the TDS rate is 20%.

Both FDs And RDs Offer Extra Interest Rate to Senior Citizens

Both fixed deposits and recurring deposits offer you preferential interest rates if you are a senior citizen.

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The interest rates on FDs and RDs for senior citizen depositors are typically 0.25%-0.50% higher than the rate that a non-senior depositor gets.

You can Borrow Against Both FDs and RDs

There may be situations when you need money urgently.

In such situations, it is not necessary to withdraw/discontinue your FD/RD.

Instead you can take a loan of up to 90% of your deposit value against your deposits. The interest rates on such loans are quite lower than those on personal loans.

Loans against deposits come with two advantages when you need money:

No need to withdraw/discontinue your deposits prematurely

Lower interest rates than personal loans, the next best option

Both FDs and RDs Offer Tax Breaks to Senior Citizens

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Interest up to Rs. 50,000 earned from all deposits is tax-exempt for senior citizens under Section 80TTB.

Note: The interest earned can be from savings bank accounts, bank fixed deposits, recurring deposits, post office deposits, etc.

Also, interest exceeding the limit is taxable as per the investor’s income tax slab.

Both Bank FDs and RDs are Insured by DICGC

Fixed deposits and recurring deposits are among the safest investment options out there.

They enjoy added safety from DICGC, an RBI subsidiary that insures bank deposits up to Rs. 5 lakhs per bank per depositor.

DICGC → Deposit Insurance and Credit Guarantee Corporation

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This means even if your bank runs into trouble, your money is safe. So, focus on finding the highest interest-rate bank deposits instead of worrying about the bank’s size or popularity.

Both FDs and RDs Are Regulated By RBI

The Reserve Bank of India (RBI) regulates all banks and NBFCs.

As an extension, fixed deposits and recurring deposits are also regulated by the RBI.

Fixed Deposit Vs Recurring Deposit: Differences Summarised

Aspect	Fixed Deposits	Recurring Deposits
Investments	Lumpsum	Recurring investments
Minimum Investment	Rs. 1,000 to Rs. 5,000	Rs. 100
Relative Interest Rates	Higher than RDs	Lower than FDs
Penalties	For premature withdrawals	For premature withdrawals and late instalments
Tax Saving	5-year FDs are eligible for tax exemption under Section 80C.	No such tax saving feature
Auto Sweep-in Facility	Available	Not available
Auto Renewal	Available	Not available

Fixed Deposit Vs Recurring Deposit: Frequently Asked Questions (FAQs)

Should you invest in fixed deposits or recurring deposits?

The choice between fixed deposits and recurring deposits largely depends on the availability of funds with you.

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If you are okay to lock your money for a while, you should prefer investing in an FD which can generate a bigger corpus for you than a comparable RD.

However, if you don’t have large funds then RDs is the way to go. RDs also help you develop the neat habit of saving your money regularly.

You should also prefer tax-saving FDs over RDs if you are okay with locking your money for 5 years to save tax under the IT Section 80C.

What are the full forms of RD and FD?

RD stands for recurring deposits whereas FD stands for fixed deposits.

Fixed Deposits vs Recurring Deposits | FD vs RD Differences