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Fixed Deposit vs Recurring Deposit: Which Gives Better Returns in 2025?

Rajesh Kumar • • 8 min
Fixed Deposit vs Recurring Deposit: Which Gives Better Returns in 2025?

Fixed Deposit (FD) and Recurring Deposit (RD) are the most popular savings instruments in India. But which one should you choose? Let's break down everything you need to know.

What is Fixed Deposit (FD)?

One-time lumpsum investment for a fixed tenure at predetermined interest rate.

Key Features:

  • Minimum deposit: ₹1,000 (varies by bank)
  • Tenure: 7 days to 10 years
  • Interest rate: 6-7.5% for general public, 0.5% higher for senior citizens
  • Interest compounded quarterly
  • Premature withdrawal allowed (with penalty)

What is Recurring Deposit (RD)?

Regular monthly deposits for fixed tenure at predetermined interest rate.

Key Features:

  • Monthly installment: Minimum ₹100
  • Tenure: 6 months to 10 years
  • Interest rate: Same as FD (6-7.5%)
  • Interest compounded quarterly
  • Ideal for salaried individuals

Interest Rate Comparison (2025)

Top Bank FD Rates:

Bank 1 Year 3 Years 5 Years Senior Citizen
SBI 6.80% 7.00% 6.50% +0.50%
HDFC 7.00% 7.00% 7.00% +0.50%
ICICI 7.00% 7.00% 7.00% +0.50%
Axis 7.10% 7.25% 7.00% +0.75%
Post Office - - 7.50% -

Note: RD rates are same as FD rates for corresponding tenure.

Returns Comparison

Scenario 1: Have ₹1 Lakh

FD Investment:
Principal: ₹1,00,000
Rate: 7% p.a.
Tenure: 5 years
Maturity: ₹1,40,255
Interest: ₹40,255

Use our FD Calculator to calculate your returns.

RD Investment:
Cannot invest lumpsum in RD. Must be monthly.

Scenario 2: Save ₹10,000 Monthly

RD Investment:
Monthly: ₹10,000
Rate: 7% p.a.
Tenure: 5 years
Maturity: ₹7,17,034
Interest: ₹1,17,034

Use our RD Calculator for calculations.

FD Alternative:
Keep investing ₹10K monthly in new FDs (not practical!)

Scenario 3: Save ₹5,000 Monthly for 10 Years

RD at 7%:
Maturity: ₹8,64,242
Investment: ₹6,00,000
Interest: ₹2,64,242

SIP in Debt Mutual Fund at 8%:
Maturity: ₹9,09,890
Better by ₹45,648!

When to Choose FD?

Choose FD if:

  • Have lumpsum amount available
  • Want guaranteed returns
  • Need safety over high returns
  • Senior citizen (extra 0.5-0.75% interest)
  • Short-term parking (3-12 months)

Best Use Cases:

  • Emergency fund corpus
  • Short-term goals (down payment in 2 years)
  • Conservative investors
  • Senior citizens' regular income

Example:
Retired with ₹50 lakh corpus. Invest in FD laddering:

  • ₹10L in 1-year FD
  • ₹10L in 2-year FD
  • ₹10L in 3-year FD
  • ₹10L in 4-year FD
  • ₹10L in 5-year FD

Every year one FD matures, providing liquidity.

When to Choose RD?

Choose RD if:

  • Salaried with monthly income
  • Building savings habit
  • Don't have lumpsum now
  • Planning for specific goal (vacation, gadget)
  • Want disciplined saving

Best Use Cases:

  • Building emergency fund
  • Saving for short-term goals
  • First-time savers
  • Teaching kids about savings

Example:
Want to save ₹2 lakh for vacation in 2 years.
Monthly RD: ₹7,750 at 7%
Maturity: ₹2,00,835

Taxation: Both FD and RD

TDS (Tax Deducted at Source):

  • 10% TDS if interest > ₹40,000/year (₹50,000 for seniors)
  • Submit Form 15G/15H if no tax liability

Income Tax:

  • Interest fully taxable at your slab rate
  • No deduction under Section 80C (except 5-year tax-saver FD)

Example:
Annual FD interest: ₹80,000
Tax slab: 30%
Tax payable: ₹24,000
Effective return: 7% becomes 4.9% post-tax!

Special FD Types

1. Tax Saver FD

  • 5-year lock-in
  • Deduction under Section 80C (up to ₹1.5L)
  • Interest still taxable
  • No premature withdrawal

2. Senior Citizen Savings Scheme (SCSS)

  • 5-year tenure
  • 8.2% interest (highest for safe instruments)
  • ₹30 lakh maximum
  • Quarterly interest payout

Use our SCSS Calculator.

3. Flexi FD

  • Combination of FD + Savings Account
  • Automatically converts excess savings to FD
  • Instant liquidity when needed

4. Cumulative vs Non-Cumulative FD

Cumulative: Interest compounded and paid at maturity
Non-Cumulative: Interest paid monthly/quarterly/annually

Example (₹10L, 5 years, 7%):
Cumulative maturity: ₹14,02,552
Non-cumulative (annual payout): Total interest ₹3,50,000

Cumulative gives ₹52,552 more due to compounding!

Premature Withdrawal

FD:

  • Allowed in most banks
  • Penalty: 0.5-1% reduction in interest rate
  • Better than breaking SIP/PPF

RD:

  • Allowed, but significant penalty
  • Some banks don't allow partial withdrawal
  • Loss of interest benefit

Example:
₹5L FD for 5 years at 7%, break after 3 years:
Effective rate: 6% (1% penalty)
Maturity: ₹5,95,506 instead of ₹7,01,277

Disadvantages of FD and RD

FD Cons:

  • Returns barely beat inflation (7% - 6% inflation = 1% real return)
  • Interest fully taxable
  • Premature withdrawal penalty
  • Fixed returns (no upside potential)

RD Cons:

  • Same low returns as FD
  • Missed monthly payment attracts penalty
  • Requires discipline
  • Better alternatives exist (SIP in debt funds)

Better Alternatives to Consider

For Lumpsum (Instead of FD):

1. Debt Mutual Funds
Returns: 7-9%
Taxation: Indexed after 3 years (lower tax)
Liquidity: 2-3 days

2. Arbitrage Funds
Returns: 6.5-7.5%
Taxation: Like equity (12.5% LTCG)
Risk: Very low

For Monthly Savings (Instead of RD):

1. Debt Fund SIP
Returns: 7-9%
Better taxation than RD
High liquidity

2. Liquid Funds
Returns: 6-7%
Instant withdrawal
No lock-in

3. PPF (for long term)
Returns: 7.1%
Completely tax-free
15-year tenure

Smart FD/RD Strategies

1. FD Laddering

Don't put all money in one 5-year FD. Create ladder:

  • ₹2L in 1-year FD (7%)
  • ₹2L in 2-year FD (7%)
  • ₹2L in 3-year FD (7.25%)
  • ₹2L in 4-year FD (7.25%)
  • ₹2L in 5-year FD (7.5%)

Benefit: Regular liquidity + higher average returns.

2. RD for Goal-Based Saving

Specific goal = Specific RD.

  • Vacation fund: ₹5K/month RD
  • Gadget fund: ₹3K/month RD
  • Emergency fund: ₹10K/month RD

3. Use RD as Stepping Stone

Start with RD → Build discipline → Graduate to mutual fund SIP.

4. Senior Citizen Strategy

  • ₹30L in SCSS (8.2%)
  • ₹20L in Post Office FD (7.5%)
  • ₹10L in bank FD (7.5% senior rate)
  • Mix for regular monthly income

FD vs RD vs SIP: The Ultimate Comparison

Feature FD RD Equity SIP
Investment Type Lumpsum Monthly Monthly
Returns 6-7.5% 6-7.5% 12-15%
Risk Zero Zero High
Taxation Slab rate Slab rate 12.5% LTCG
Lock-in Flexible 6M-10Y None (except ELSS)
Best For Lumpsum savings Monthly discipline Wealth creation

For Wealth Creation: SIP wins
For Safety: FD/RD wins
For Discipline: RD/SIP wins

Common Mistakes to Avoid

Mistake 1: Investing Only in FD/RD

Real returns barely 1% after tax and inflation. Need equity exposure for growth.

Mistake 2: Not Comparing Rates

Interest rate difference of 0.5% = ₹2,500 extra on ₹1L in 5 years.

Mistake 3: Ignoring Taxation

₹80,000 interest at 30% tax = Pay ₹24,000 extra. Plan accordingly.

Mistake 4: Breaking FD Too Often

1% penalty seems small but compounds to large loss over time.

Mistake 5: Not Using Tax-Saver FD

If investing in FD anyway, use 5-year tax-saver FD to save ₹46,800 in taxes (₹1.5L at 30% + cess).

Conclusion

Choose FD if:

  • Have lumpsum amount
  • Need guaranteed safety
  • Senior citizen

Choose RD if:

  • Monthly salary
  • Building saving habit
  • Short-term goal

Choose SIP (Mutual Funds) if:

  • Want wealth creation
  • 5+ year horizon
  • Can handle volatility

Ideal Strategy:

  • Emergency fund: Bank FD (instant liquidity)
  • Short-term goals: RD / Short-term debt funds
  • Long-term wealth: Equity mutual fund SIP

Use our calculators:

Bank interest rates change frequently. Check current rates before investing.

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