Fixed deposit vs recurring deposit: which is better?

How a fixed deposit works

You deposit a lump sum with a bank for a chosen period, from a few months to several years, and the bank pays a fixed rate of interest. The rate is locked at the time you open the deposit, so a later fall in rates does not affect you.

Interest can be paid out periodically (monthly, quarterly) if you want regular income, or it can be reinvested and paid at maturity, which grows your money faster through compounding. Withdrawing before maturity usually carries a penalty and a lower rate.

How a recurring deposit works

You deposit a fixed amount every month for a set tenure. Each instalment earns interest for the time it stays with the bank, and at maturity you receive all the instalments plus interest as a lump sum.

It is essentially a disciplined monthly savings plan with a guaranteed return. Missing instalments usually triggers a penalty, and the rules on that differ between banks.

Side by side

• Best for: FD suits money you already have; RD suits people who want to build a lump sum from monthly income.
• Deposit pattern: FD is one payment at the start; RD is a fixed payment every month.
• Flexibility: FD interest can be taken as regular income; RD pays everything at maturity.
• Rates: banks often pay similar rates on both for the same tenure, but the effective return on an RD is lower than an FD of the same total, because each RD instalment stays invested for less time than the first one does.

How to choose

If you have a lump sum, for example a bonus or maturity proceeds, an FD puts all of it to work from day one. If your money arrives monthly and you struggle to save what is left over, an RD builds the habit and locks the money away from casual spending.

Many people use both: an FD for savings already in hand and an RD for a specific goal, such as a holiday or a down payment, funded from monthly income.

Things to check before you open either

• The rate for the exact tenure you want, since rates differ across tenures and banks.
• Whether senior citizens get a higher rate.
• The penalty for premature withdrawal or a missed RD instalment.
• Tax: interest is taxable as income, and banks may deduct tax at source above a threshold (see our guide on FD taxation).

Compare current rates

Rates change often, so this page does not quote them. The FD and RD lists on Truely Money are ranked by interest rate and updated regularly. This is general information, not personal financial advice.