Saving money is one of the most important financial habits for every Indian family. Whether you are planning for your child’s education, marriage, home purchase, or building an emergency fund, choosing the right savings option matters. Two of the most popular and trusted saving schemes in India are Fixed Deposit (FD) and Recurring Deposit (RD).
Both are offered by almost every bank and post office, and both give guaranteed returns. But the question many people ask is:
FD vs RD – which is better for long-term savings?
In this easy-to-understand guide, we compare FD and RD in detail, including their features, benefits, drawbacks, returns, and suitability. By the end, you will know exactly which one fits your financial goals.
What is an FD (Fixed Deposit)?
A Fixed Deposit (FD) is a savings scheme where you deposit a lump sum amount for a fixed period. The bank pays interest at a guaranteed rate throughout the tenure.
Key Features of FD
- One-time deposit
- Fixed interest rate
- Tenure from 7 days to 10 years
- Higher interest compared to savings account
- Early withdrawal allowed (with penalty)
FDs are suitable for people who want to invest big amounts at once and earn stable returns.
What is an RD (Recurring Deposit)?
A Recurring Deposit (RD) is a scheme where you deposit a fixed amount every month. It is perfect for people who want to build savings slowly and regularly.
Key Features of RD
- Monthly deposits
- Fixed interest rate
- Tenure from 6 months to 10 years
- Ideal for small, disciplined savings
- Penalty for missed payments or early withdrawal
RDs are suitable for people who want to form a savings habit and invest monthly.
FD vs RD – Quick Comparison
| Feature | FD (Fixed Deposit) | RD (Recurring Deposit) |
| Deposit Type | Lump sum | Monthly |
| Ideal For | Investors with big savings | Monthly savers |
| Interest Rate | Higher | Slightly lower than FD |
| Tenure | 7 days – 10 years | 6 months – 10 years |
| Returns | Higher due to lump sum | Lower due to monthly installments |
| Risk | Very low | Very low |
| Tax Benefits | Only in Tax-Saver FD | No tax benefit |
| Premature Withdrawal | Allowed with penalty | Allowed with penalty |
Benefits of FD (Fixed Deposit)
- Guaranteed High Returns
FDs offer stable and predictable returns that stay fixed throughout the tenure.
- Flexible Tenure
You can choose between very short-term (7 days) and long-term (10 years).
- Safe Investment
FDs are one of the safest investment options in India.
- Higher Interest for Senior Citizens
Most banks offer extra 0.25% – 0.75% interest for senior citizens.
- Tax-Saving Option Available
5-year Tax-Saver FD offers deduction under Section 80C.
Drawbacks of FD
- Inflation may reduce real returns
- Penalty for premature withdrawal
- Interest is fully taxable
- Some banks offer lower interest rates than others
Benefits of RD (Recurring Deposit)
- Ideal for Monthly Saving
Great for salaried people or anyone who wants to save a little every month.
- Guaranteed Returns
Interest remains fixed throughout your deposit period.
- Easy Auto-Debit Feature
Banks automatically deduct the RD amount every month.
- Low Minimum Deposit
You can start with even ₹100 or ₹500 per month.
- Safe and Risk-Free
Returns are guaranteed with no market risk.
Drawbacks of RD
- Lower returns compared to FD
- Monthly deposit required without fail
- Early closure penalty
- No tax-saving option
FD vs RD: Which Gives Better Returns?
FDs generally give higher returns because the full amount is deposited at once and interest accumulates on the entire sum.
In RD, interest is calculated on each monthly installment, so total returns are slightly lower.
Example:
If you invest ₹1,20,000:
- In FD → full amount earns interest for the entire period
- In RD → monthly ₹10,000 earns interest for less time
Thus, FD > RD in returns for the same total investment amount.
FD vs RD Interest Rate Comparison (Typical Range)
| Bank/Institution | FD Rate | RD Rate |
| Public Sector Banks | 5.5% – 7% | 5.3% – 6.8% |
| Private Banks | 6% – 7.5% | 6% – 7.2% |
| Post Office | 7.5% | 6.7% |
| NBFCs | 7% – 8.5% | Usually not available |
(Rates change frequently; check latest rates before investing.)
Which is Better for Long-Term Savings? – FD or RD
The right choice depends on your savings style and goals. Here is a simple guide:
Choose FD if:
- You have a lump sum amount
- You want higher returns
- You want tax saving (5-year Tax-Saver FD)
- You want to lock money for long-term goals
- You want senior citizen benefits
Choose RD if:
- You want to save monthly
- You do not have a large amount right now
- You want disciplined savings
- You want guaranteed returns with small deposits
Which is Better for Long-Term Goals?
For long-term goals (5–10 years):
- FD is better for higher returns, especially for senior citizens
- RD works for monthly investment habits
Best Combo Strategy:
If possible, use both:
- Use FD for major long-term goals
- Use RD for regular monthly saving
Step-by-Step Guide to Open an FD
- Choose a Bank or NBFC
Compare interest rates online.
- Select FD Type
Regular FD / Tax Saver FD / Senior Citizen FD.
- Select Tenure
Choose between 1 year to 10 years for long-term savings.
- Deposit Amount
Transfer your lump sum amount.
- Choose Interest Payout
- Monthly
- Quarterly
- Yearly
- On maturity (gives highest return)
Step-by-Step Guide to Open an RD
- Visit Your Bank or Mobile App
Almost all banks allow online RD creation.
- Choose RD Amount
Decide how much you can deposit each month.
- Select Tenure
Choose between 6 months to 10 years.
- Enable Auto-Debit
The amount will be deducted automatically every month.
- Track Monthly Payments
Avoid missing installment dates.
FD vs RD: Taxation Rules in India
FD Tax Rules
- Interest is fully taxable
- TDS applies above ₹40,000 per year (₹50,000 for senior citizens)
- 5-year Tax Saver FD gives 80C benefit
RD Tax Rules
- Interest is taxable
- No TDS for most banks
- No tax benefit available
FAQs on FD vs RD
- Which gives higher interest – FD or RD?
FD generally gives higher returns because you deposit a lump sum.
- Which is better for beginners?
RD is better for beginners as it builds a monthly savings habit.
- Is FD safe?
Yes, FDs are considered one of the safest savings options.
- Can I break an FD early?
Yes, but you will pay a penalty or lose some interest.
- Can I stop an RD in the middle?
Yes, but the bank may deduct a penalty for premature closure.
- Can NRIs invest in FD and RD?
Yes, NRIs can open NRE/NRO FDs and RDs depending on bank rules.
- Is FD better for long-term goals?
Yes, FD usually gives better returns for long-term lump sum investments.
Conclusion
Both FD and RD are safe, reliable, and popular financial tools for Indian savers.
- Choose FD if you have a lump sum and want higher returns.
- Choose RD if you want to save small amounts consistently every month.
For long-term savings such as children’s education, home purchase, or retirement planning, FDs usually perform better. But if you want to build disciplined saving habits, RDs are the perfect choice.
The best strategy is to use both FD and RD together according to your financial goals.
