FD vs. RD – Which is Better for Savings?

When it comes to safe and secure investment options, Fixed Deposits (FDs) and Recurring Deposits (RDs) are two of the most popular choices among Indian investors. Both are offered by banks and financial institutions, providing guaranteed returns with minimal risk.

But which one is better for your savings goals? Should you invest in an FD for lump-sum savings or opt for an RD if you want to save small amounts regularly?

In this detailed comparison between FD and RD, we’ll explore:

• What is an FD and how does it work?

• What is an RD and how does it work?

• Key differences between FD and RD

• Interest rates comparison

• Tax implications

• Which is better for short-term and long-term savings?

• Pros and cons of FD and RD

• Alternatives to FD and RD

By the end of this guide, you’ll have a clear understanding of whether an FD or RD is better for your financial needs.

1. What is a Fixed Deposit (FD)?

A Fixed Deposit (FD) is a savings instrument where you deposit a lump sum amount with a bank or NBFC for a fixed tenure at a predetermined interest rate. The interest remains constant throughout the tenure, providing stable and risk-free returns.

How Does an FD Work?

• You invest a one-time lump sum amount (minimum varies by bank).

• Choose a tenure (7 days to 10 years).

• Earn a fixed interest rate (compounded quarterly or annually).

• Withdraw the principal + interest at maturity.

Types of FDs

1. Regular FD – Standard fixed deposit with fixed tenure.

2. Tax-Saving FD – Lock-in period of 5 years, eligible for Section 80C deduction (up to ₹1.5 lakh).

3. Senior Citizen FD – Higher interest rates (0.25% - 0.75% extra).

4. Flexi FD – Linked to a savings account, auto-sweeps excess funds into FD.

FD Interest Rates (2025)

Bank/NBFC | Regular FD Rate (%) | Senior Citizen FD Rate (%)

SBI 6.50 - 7.00 7.00 - 7.50

HDFC Bank 6.75 - 7.25 7.25 - 7.75

ICICI Bank 6.70 - 7.20 7.20 - 7.70

Post Office FD 6.70 - 7.50 7.20 - 8.00

2. What is a Recurring Deposit (RD)?

A Recurring Deposit (RD) is a savings plan where you deposit a fixed amount every month for a predetermined tenure. Unlike an FD, you don’t need a lump sum—instead, you save small amounts monthly and earn interest.

How Does an RD Work?

• Deposit a fixed monthly amount (as low as ₹500).

• Choose a tenure (6 months to 10 years).

• Earn compounded quarterly interest.

• Get the total savings + interest at maturity.

Types of RDs

1. Regular RD – Standard recurring deposit.

2. Flexi RD – Allows variable monthly deposits.

3. NRE/NRO RD – For NRIs.

RD Interest Rates (2025)

Bank/NBFC RD Interest Rate (%)

SBI 6.50 - 7.00

HDFC Bank 6.75 - 7.25

ICICI Bank 6.70 - 7.20

Post Office RD 6.70

3. Key Differences Between FD and RD

Feature Fixed Deposit (FD) Recurring Deposit (RD)

Investment Type Lump-sum Monthly installments

Minimum Amount ₹1,000 - ₹10,000 ₹500 - ₹1,000

Tenure 7 days - 10 years 6 months - 10 years

Interest Rate Slightly higher (7-8%) Slightly lower (6.5-7.5%)

Liquidity Penalty on premature withdrawal Penalty on premature closure

Best For One-time investors Regular savers

Tax Benefits Only Tax-Saving FDs (80C) No tax benefits

4. FD vs. RD – Which Gives Higher Returns?

Example: ₹50,000 Investment

• FD (Lump Sum, 5 years @7%)→ ₹70,128 (compounded quarterly).

• RD (₹1,000/month, 5 years @6.5%) → ₹71,432 (compounded quarterly).

Observation:

• For short-term (1-3 years), FD gives better returns (higher interest rates).

• For long-term (5+ years), RD can be competitive due to compounding.

5. Tax Implications: FD vs. RD

• Both FD and RD interest is taxable under "Income from Other Sources".

• TDS @10% is deducted if interest exceeds ₹40,000 (₹50,000 for senior citizens).

• Tax-Saving FDs (5-year lock-in) qualify for Section 80C deduction.

6. FD vs. RD – Which is Better for You?

Choose FD If:

✅ You have a lump sum amount to invest.

✅ You want higher interest rates for short-term goals.

✅ You need tax benefits (via Tax-Saving FD).

Choose RD If:

✅ You want to save small amounts monthly.

✅ You don’t have a large corpus upfront.

✅ You need flexibility in savings.

7. Pros and Cons of FD and RD

Pros of FD

✔ Guaranteed returns

✔ Flexible tenures

✔ Higher interest than savings accounts

✔ Loan against FD available

Cons of FD

❌ Penalty on premature withdrawal

❌ Interest taxable

Pros of RD

✔ No need for a lump sum

✔ Disciplined savings habit

✔ Good for long-term goals

Cons of RD

❌ Lower interest than FD

❌ Strict monthly commitment

8. Alternatives to FD and RD

If you want higher returns with moderate risk, consider:

• Debt Mutual Funds (Better post-tax returns than FDs)

• PPF (Public Provident Fund) (Tax-free, 7.1% interest)

• Corporate FDs (Higher rates but slightly riskier)

Final Verdict: FD or RD – Which is Better?

Parameter Winner

Higher Returns FD (for short-term)

Regular Savings RD

Liquidity Both have penalties

Tax Benefits FD (Tax-Saving FD)

Conclusion:

• FD is better if you have a lump sum and want higher interest.

• RD is better if you want to save systematically with small amounts.

For maximum benefits, you can combine both FD and RD based on your financial goals!

FAQs

1. Can I break my FD or RD before maturity?

• Yes, but with a penalty (0.5% - 1% reduction in interest).

2. Which is safer – FD or RD?

• Both are equally safe (backed by banks/NBFCs).

3. Can I get a loan against FD/RD?

• Yes, banks offer loans up to 90% of FD/RD value.

4. Which has higher interest – FD or RD?

• FD rates are slightly higher than RD rates.

5. Are post office FDs/RDs better than banks?

• Post office schemes offer stable returns but have lower liquidity.

By now, you should have a clear understanding of FD vs. RD and which one suits your savings needs. If you want risk-free returns, both are excellent—just pick based on your investment style!

Want personalized advice? Consult a financial advisor to align these options with your goals.