The basic difference
A fixed deposit (FD) takes a lump sum today and pays it back with interest at the end of a fixed term. A recurring deposit (RD) takes a fixed amount every month and pays back the total with interest at maturity. Both pay a rate that is fixed when you open the account, and both are low in risk compared with market-linked investments.
The choice is mostly about how your money arrives. If you have a sum available now, you use an FD. If you save from monthly income, you use an RD.
A worked example
Take a 5-year term, a 7% rate and quarterly compounding. An FD of ₹5,00,000 grows to about ₹7.07 lakh.
An RD of ₹10,000 a month for the same 5 years means you deposit ₹6,00,000 in total and receive about ₹7.19 lakh, which is about ₹1.19 lakh of interest. The RD earns less interest per rupee than the FD, because each deposit stays in the account for a shorter time. Use the FD Calculator and the RD Calculator to run your own numbers.
Points to compare
Interest is taxable, added to your income and taxed at your slab rate, and banks may deduct tax at source above certain limits. Check the current rules.
Withdrawing early usually costs you a penalty, so do not lock in money you may need soon.
Rates differ between banks and for different tenures, and some offer more to senior citizens. Compare before you book.
Deposits in banks are insured up to a limit per depositor per bank, so spread large amounts across banks. Check the current limit.
Beating inflation
A 7% FD that is taxed at 30% leaves about 4.9% after tax. If inflation runs near that level, your money barely grows in real terms. For goals more than five years away, many people add some market-linked investments alongside deposits. The Inflation Calculator shows how much purchasing power you can lose over time, and a SIP is the usual monthly alternative to an RD.
Frequently asked questions
Which gives a better return, FD or RD?
For the same rate and tenure, an FD earns more per rupee than an RD because the whole amount is invested from day one. They suit different situations, so the comparison is about cash flow, not just return.
Can I stop paying into an RD?
Missing instalments usually brings a penalty, and the account may be closed early. Choose an amount you can keep paying.
Is the interest guaranteed?
The rate is fixed when you open the account. As with any deposit, the safety depends on the institution and the insurance limit.