Understand the Difference between FD and RD
Fixed Deposits (FDs) & Recurring Deposits (RDs) are amongst the most popular investment options available in the country. FDs & RDs are offered by banks, post offices, financial institutions & NBFCs. They offer a fixed rate of interest on deposits which varies across tenures of deposit & institutions.
These investments are well-favored by investors as they are considered to be one of the safest modes of investment. However, not all deposits are safe as one offered by low rated financial institutions or NBFCs might carry some risks of default or capital losses. So, it’s always important to inspect the credibility of the institution before making any deposits.
What are Fixed Deposits ?
Fixed Deposits or FDs are one of India’s most popular investments among investors for its high safety & simplicity. Fixed Deposits are offered by banks, post offices, financial institutions & NBFCs. These deposits offer a fixed rate of interest for a specific maturity tenure which is decided at the time of opening the account. Under this deposit, the investors need to deposit a lump sum amount at the start which is generally paid back at the time of maturity along with the due interest. Fixed Deposit can also be available with two options - Cumulative & Non-cumulative where the first one doesn’t make interest payouts on due date, rather pay the whole accumulated interest at the maturity along with the principal. And the latter makes regular interest payouts as & when it is due.
What are Recurring Deposits ?
Recurring Deposits or RDs are another popular mode of investment which can meet the regular savings & investment needs of households. Unlike FDs, Recurring Deposits doesn’t require its investors to make a lump sum investment, rather investors need to deposit small amounts or contributions every month into the account for building a corpus over time. These deposits also offer fixed rates of interest. The interest rates are generally paid back at maturity along with the principal amount.
Investors have the flexibility to choose the investment tenure for making deposits as per their requirements.
Also Read: RD vs SIP
Comparison between Fixed Deposits and Recurring Deposits
Nature of Investment
Fixed Deposit is a one-time investment offering a fixed rate of interest which is paid during the tenure or at maturity along with the principal. While Recurring Deposit is a recurring mode of investment where investors make regular investments every month till the maturity.
Interest Rates
Interest rates offered by fixed deposits are generally similar to that of the recurring deposits. However, the absolute interest amount earned in FDs is higher, because the entire principal is invested at the beginning of investment tenure and therefore earns higher interest as compared to RDs done for the same time frame.
Generally, interest rates in Fixed Deposits (FDs) ranges from 2.25% to 7% & interest rates in Recurring Deposits (RDs) ranges from 3.00% to 9.00%.
Tenure of Investment
Fixed Deposits are typically offered for investment tenures of 7 days to 10 years while Recurring Deposits are offered for investment tenures of 6 months to 10 years.
Therefore, investors get the flexibility to choose the tenure in both modes of investment as per their preferences.
Also Read : au small finance bank Fixed Deposit rates
Minimum Investment
Investors can start investing in Fixed Deposit (FD) schemes with a minimum amount of Rs. 1000 whereas the minimum amount required to invest in a Recurring Deposit (RD) scheme is as low as Rs.100.
There is no upper limit of investment in these accounts. However, it usually depends upon the offering institution as some might have set a criteria for upper limits.
Payouts
Fixed Deposits (FDs) can offer periodic payouts such as monthly, quarterly, semi-annually, annually, or at the time of maturity. Periodic payout options could be helpful for individuals like senior citizens who have regular income needs to meet their financial requirements.
When it comes to Recurring Deposits (RDs), interest payout only happens once i.e at maturity along with the principal.
| Parameters | Fixed Deposit | Recurring Deposit |
| Nature | A lump-sum investment scheme that offers a fixed rate of interest. | Investment scheme where regular monthly deposits are made into account till maturity. |
| Interest Rate | Interest rates are similar. Between 2.25% - 7% depends upon tenure & offering institutions. | Between 3.00% - 9.00%, depends upon investment tenure & offering institution. |
| Tenure | 7 days to 10 years | 6 months to 10 years |
| Minimum Deposits | Rs. 1,000 | Rs. 100 per month |
| Interest Payouts | Option to have periodic payouts or at the time of maturity. | At Maturity |
| Frequency of deposits | One-time investment (lump-sum) | Every Month |
FD or RD, Which is better ?
Both the deposits are good investment options for investors looking to earn low-risk returns. From a return perspective, FDs usually offer slightly higher returns than RDs mainly because of the one-time investment made at the start instead of a staggered one. However, both the investments are suitable for different kinds of investors as per their needs & requirements.
Fixed Deposits could be preferred for investments if the investor has idle money in his savings account or a large sum to invest in low-risk products. Recurring Deposit is preferable for investors willing to make small deposits or contributions into account every month to build a corpus over the long term for meeting their financial needs & goals. So, investors can simply choose the option which is suitable to meet their requirements.
However, one must consider the fact that the real rate of return on both FD & RD is generally close to zero, or sometimes even negative. Investors should consider debt mutual funds as a preferable option to bank deposits for better inflation-adjusted returns.
Frequently Asked Questions about FD vs RD
Q. When is interest for RD and FD paid out ?
A. While the interest earned on recurring deposits is only paid to the depositor at the time of maturity, fixed deposits allow depositors to choose the time of interest payout at the time of opening the FD.
Q. What is the minimum and maximum tenures for recurring deposit vs fixed deposit ?
A. The minimum and maximum tenures of RDs and FDs depend on the bank/NBFC. However while the minimum duration for a fixed deposit is generally seven days, the minimum tenure for a recurring deposit is six months. Both types of deposits have a maximum tenure of 10 years in most banks and NBFCs.
Q. Which banks offer the highest interest rates on fixed deposits ?
A. The fixed deposit interest rates keep on changing; thus it is difficult to highlight a bank or non-bank finance company offering the highest interest rates. But you can check out the latest HDFC Bank FD interest rates, ICICI Bank FD interest rates, Kotak Bank FD interest rates, SBI Bank FD interest rates, Axis Bank FD interest rates, and more, along with other details on ZFunds website to select where to open an FD account.
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