Fixed Deposit and Recurring Deposit are the most popular investment products in India, especially if you are looking for a risk-free investment. One of the major advantages of investing in an FD or RD is that there are fixed returns over a specified period of time with no risk involved. Bank Fixed Deposits and Recurring Deposits are safer investment options than making investments in equities as these deposits are not market-linked and provide a fixed rate of return.
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Although, both FD and RD give guaranteed returns to the investor, when you make a comparison between the two investment options, a fixed deposit earns you higher than a recurring deposit. Among features like guaranteed returns, flexible tenure and loan against FD, you also get the option of a credit card against FD by some of the banks. Paisabazaar’s Step Up Card (in partnership with SBM Bank India Ltd.) makes FD altogether a better option.
Let us discuss how these two deposits differ in the earnings and which one you should opt.
Fixed Deposit or FD, as the name says, is an investment option where the period of investment and is fixed and so is the interest earned on it. Deposit is made only once, i.e. at the commencement of the FD period. Period of investment is more commonly known as the tenure which ranges from 7 days to 10 years (sometimes 20 years).
To calculate the maturity amount that you will get at a particular rate of interest, use the FD Calculator by Paisabazaar.com.
Also Read: Advantages of investing in Fixed Deposit
FDs of up to ₹5 lakhs insured by RBI
No hassle of opening a saving account
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Recurring deposit is a type of risk-free investment where a fixed amount is deposited in a bank or an NBFC every month. The rate of interest is fixed and does not change throughout the length of the RD tenure. RD tenure ranges from 6 months to 10 months (generally).
To calculate the maturity amount (the total of deposits made + interest earned), use the Paisabazaar.com RD Calculator.
| Particulars | Fixed Deposit (FD) | Recurring Deposit (RD) |
| Deposit Frequency | Only once | Monthly |
| Tenure | 7 days to 10 years | 6 months to 10 years |
| Minimum deposit | Rs. 100 | Rs. 1,000 |
| TDS |
10% if interest income exceeds Rs 40,000/FY; Rs 50,000 for senior citizens (20% if PAN is not submitted) |
|
| Suitable for | Salaried individuals and pensioners, etc. | Housemakers, students and freelancers, etc. |
| Income Tax saving option | Available with 5 years of the lock-in period | Not available |
| Deposit Insurance | Covered | Covered |
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When you compare fixed deposit and recurring deposit, you will witness that a fixed deposit will earn you more income than a recurring deposit.
Let’s consider 5 different examples in the table below. In the first example, you make an investment of Rs 24000 for a tenure of 1 year and Rs 2000 p.m. for the same tenure. Then in the second example, let us increase the investment to Rs 48000 in fixed deposit for a tenure of 2 years and Rs 2000 p.m. for 2 years as well. So, with every year we are increasing the amount in fixed deposit by Rs 24000 to match the investment in the recurring deposit which is Rs 2000 per month. The comparison table below is based on an assumption that the bank or financial institution is offering you a 7.2% rate of interest which is compounded monthly.
|
Tenure |
Fixed Deposit Amount (a) |
Interest Earned on FD (7.2%) (b) |
FD Maturity Amount(c) |
Recurring Deposit Amount p.m. (d) |
Interest Earned on RD (7.2%) (e) |
RD Maturity Amount(f) |
Difference (c-f) |
|
1 Year |
Rs 24000 |
Rs 1786 |
Rs 25786 |
Rs 2000 |
Rs 957 |
Rs 24957 | Rs 829 |
| 2 Years | Rs 48000 | Rs 7410 | Rs 55410 | Rs 2000 | Rs 3771 | Rs 51771 | Rs 3639 |
| 3 Years | Rs 72000 | Rs 17301 | Rs 89301 | Rs 2000 | Rs 8581 | Rs 80581 | Rs 8720 |
| 4 Years | Rs 96000 | Rs 31930 | Rs 127930 | Rs 2000 | Rs 15535 | Rs 111535 | Rs 16395 |
| 5 Years | Rs 120000 | Rs 51814 | Rs 171814 | Rs 2000 | Rs 24793 | Rs 144793 | Rs 27021 |
*The above table is based on an assumption that the interest rate provided by your bank is 7.2% which is compounded monthly.
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As you can see, after a year you will receive Rs 25786 in a fixed deposit while in the recurring deposit you will receive Rs 24957. So, the recurring deposit in a year will earn you Rs 829 less than a fixed deposit. But, this difference increases when we invest Rs 120000 in a fixed deposit for a term of 5 years and Rs 2000 p.m. in a recurring deposit for a period of 5 years. After 5 years, you will receive Rs 171814 in an FD while in the recurring deposit you will receive Rs 144793 on maturity.
For easy calculations, you can calculate the return on your fixed deposit and recurring deposit and the maturity amount using an FD Calculator or RD Calculator in one click.
This option of a secured card is available only against a fixed deposit and can help you in planning your finances better. Also, if you have a poor credit score or are new to credit, a credit card against FD like Paisabazaar’s Step Up Credit Card can help you greatly.
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Individuals who do not have a considerable sum of money to invest but can afford a small portion for investment every month should go for a recurring deposit instead of a fixed deposit. Deposits will be made every month and the total amount or the maturity amount will be credited to your linked savings or current account at the completion of the RD tenure.
But, if you have a lump sum amount to invest at one go, the fixed deposit is the right investment option for you. You will be able to get more interest as the principal will be bigger right from the start.
Also, to get better returns, you should opt for a cumulative FD. Here, the interest earned in one cycle (per month, every quarter, semi-annually or annually) will not be credited to your linked account but will be reinvested with the initial deposit amount. This will increase the principal and in the next cycle, the interest will be calculated on a higher principal, thus giving you higher returns.
Both the fixed deposit and recurring deposit are risk-free investments. A fixed deposit will earn you more than a recurring deposit but some individuals also prefer a recurring deposit over a fixed deposit as they do not have enough money to invest at one go. Therefore, decide as per your affordability.
